Lo and behold, not with a bang but a whimper, do the finalised terms of the Kraft-Cadbury deal come on Tuesday morning, right, as Pestowire predicted, at 9:04am London time.
From the statement:
* The board of Kraft Foods is pleased to announce the detailed terms of a recommended Final Offer for Cadbury and the board of Cadbury unanimously recommends Cadbury Securityholders to accept the terms of the Final Offer.
* Under the terms of the Final Offer, Cadbury Securityholders will be entitled to receive: for each Cadbury Share 500 pence in cash and 0.1874 New Kraft Foods Shares for each Cadbury ADS 2,000 pence in cash and 0.7496 New Kraft Foods Shares
representing, in aggregate, 840 pence per Cadbury Share and GBP 33.60 per Cadbury ADS.
* In addition, Cadbury Shareholders will be entitled to receive 10 pence per Cadbury share by way of a Special Dividend following the date on which the Final Offer becomes or is declared unconditional.
* The terms of the Final Offer reflect the strength of Cadbury’s business, its brands and the future potential for growth through the combination of Kraft Foods and Cadbury.
The terms value Kraft’s bid at about £11.7bn, or $19bn, 14.6 per cent higher than the original offer of £10.2bn first mooted in September. That’s just sweet enough for Cadbury shareholders (sorry) but with the potential to leave a bitter aftertaste (ahem) for Kraft’s credit.
The company will have to borrow about £7bn to finance the new deal.
Which means we can’t help but reprise this September statement from Moody’s:
NEW YORK (Reuters) – Moody’s Investors Service on Tuesday said it may cut the debt rating on Kraft Foods Inc, citing its $16.7 billion takeover bid for Cadbury Plc.
Cadbury, known for its chocolate bars, has rejected the cash and stock bid.
“Given Cadbury’s rejection of Kraft’s initial proposal on valuation concerns, we expect that any follow-up offer by Kraft would likely involve a higher price,” Moody’s said in a statement.
Moody’s said it is also concerned that Kraft will need to increase its use of leverage for the deal as it raises its offer. Kraft’s credit measures are already weak for its Baa2 rating, Moody’s said. A Baa2 rating is two steps above junk status.
So, doth a downgrade beckon for the enlarged group?
Here’s some comment from Gary Jenkins from Evolution Securities:
It is being widely reported that Kraft is to increase its offer for Cadbury to 840p a share, a level at which it is said that Cadbury would be comfortable recommending to shareholders. At the time of the original offer Moody’s stated that any downgrade of Kraft’s Baa2 rating would likely be limited to one notch, but there is a larger cash element if the speculation is to believed which might put further pressure on the rating. Most probable outcome is that the new group remains investment grade but it could be a close run thing.
Kraft shares are down 0.9 per cent in pre-trading.
Related links:
Cadbury and Kraft turn sweet on deal – FT
Kraft’s credit - FT Alphaville
Too much chocolate can make you feel sick – FT Alphaville