No this isn’t RAW market info but some fantasy M&A from Panmure Gordon.
Analysts Graham Jones thinks Unilever should seriously consider offering 850p a share for Cadbury as it would be earnings enhancing and add meaningful exposure to what is already one of the best emerging operations in the consumers goods industry. He also thinks Kraft’s offer for Cadbury is ludicrously low.
Here’s the interloper analysis:
We are surprised there has so far been little talk of the possibility of Unilever bidding for Cadbury. Paul Polman has talked about infill acquisitions of €1bn– 3bn pa, but times change and we believe he should seriously consider this opportunity. The key points that we would make are:
The time is right: Unilever has spent most of this decade restructuring (shrinking) its brand portfolio, organisational structure and cost structure. It has now started to build its business again, with relatively modest acquisitions such as TIGI professional hair care, Sara Lee’s personal care business and ice-cream and ketchup businesses in Russia. While Cadbury does not fit with the ‘bolt-on’ acquisitions Paul Polman has talked about, clearly such opportunities do not come up often and we would expect Unilever to be at least running the rule over Cadbury.
Accretive to both sales growth and margins: The global confectionery market has grown by over 5% pa over the past five years, and Cadbury’s sales have grown by 6% pa. We believe Unilever’s natural growth rate is around 4–5% and the addition of Cadbury would therefore enhance the long-term growth rate of the group. Equally, confectionery benefits from high brand loyalty and low ownlabel penetration (around 4% globally), and avoids the major multiple channels significantly more than most consumer goods categories. As such, while Cadbury’s margins are currently below those of Unilever, we believe they will be accretive to group margins over time.
Unilever’s balance sheet is its trump card: Unilever has low gearing, with net debt/EBITDA of just 1.3x for 2010E (even after the Sara Lee acquisition). Unilever is at the end of its major restructuring programme and therefore cash generation should accelerate from next year. We estimate that Unilever could offer 850p in cash for Cadbury and still have net debt/EBITDA for 2010E of under 2.9x – better than Kraft’s gearing BEFORE it bid for Cadbury. Unilever could win an auction versus Kraft with a lower priced offer given the lack of a US equity element to the offer and an accelerated timetable (given there would be no regulatory issues for Unilever).
A manageable deal: Unilever’s portfolio is very focused, and we believe adding another category would be easily manageable. While Unilever would not have the manufacturing synergies available to Kraft, it arguably could have more distribution synergies. It may also be able to leverage the Cadbury brand into ice cream in a more effective way than has been done in the past.
Emerging market leverage: The emerging markets remain the holy grail for global FMCG companies and we believe Unilever certainly has one of the best businesses, already accounting for just under 50% of group sales. However, this is largely based on its HPC platform, and adding Cadbury would give it leadership in the region in an already large (and growing) food category.
A CEO that the market would back: Paul Polman came to Unilever with an impressive track record, most recently with Nestlé, but more significantly with P&G. Since joining Unilever he has generally impressed the market with his frank and open style.
More in the usual place.
Related link:
Kraft bid hangs on Cadbury update – FT
Reject opportunistic Cadbury bid, says FT Alphaville – FT Alphaville