Right now, Kraft is the biggest food company in the United States and the second-biggest worldwide (they only trail Nestle). The combination of Kraft and Cadbury would generate $50 million every year in total revenue, but would still fall behind Nestle.
The biggest problem with the deal is that the British do not want to see one more English icon be consumed by the American economic machine. The company has a strong model for growth and has had higher than expected earnings for the third quarter. They expect to grow between four and six percent during the next year.
Kraft, on the other hand, has a slow growth model. They have recently recorded lower than expected earnings, which stems from a one-time deal in 2008. To counter the British disapproval, Kraft has revised one of its original terms regarding employment. In the initial offer, Kraft wanted to transfer the food plants to Poland, whereas they now pledge to keep 500 jobs in factories across England.
Other than relying on shareholders, Cadbury can only hope that another business makes an offer. It has been speculated that chocolate giant Hershey is to make a bid, as well as Italy’s Ferrero.
The current terms are as follows: 300 pence in cash and 0.2589 new Kraft shares for each Cadbury share. This values the Cadbury at 715 pence, compared the closing share price of 800 pence.
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I have always favored value stocks over growth stocks. Simply because of the safety that value investing gives you compared to growth stock investing Growth stock investing is all about future expectations. Value investing is about the current net asset value of a company. This does not mean that their are not any growth stocks that are not great investments.
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