Shares in Cadbury PLC slipped on Friday on the last full day of trading before a deadline for rival offers to Kraft Food Inc.'s 11.5 billion pound ($19.5 billion) planned takeover — with little sign of action from The Hershey Co.
Hershey, which had previously stated an interest in the British confectioner, has until 07:00 GMT (02:00 EST) on Monday to make a formal bid for the company.
The Financial Times newspaper said that the Hershey board voted unanimously at a meeting on Wednesday evening against making a rival offer after the Cadbury board's decision to recommend the sweetened Kraft offer.
Cadbury shares were down 0.8 percent at 826.5 pence in midmorning trade on the London Stock Exchange, as analysts downgraded the attraction of the stock because of Hershey's expected exit from the race and its likely increased exposure to U.S. equity markets.
The shares are currently trading below the Kraft bid of 840 pence per share for the British maker of Dairy Milk chocolates and Dentyne gum, comprising 500 pence cash and 0.1874 new Kraft shares for each Cadbury share.
The combination of Cadbury and Kraft, the maker of Toblerone chocoloate, Velveeta processed cheese and Oreo cookies, would create the world's biggest confectionary company, replacing Mars Inc.
Analysts have been sceptical that Hershey would be able to top Kraft's decision to increase its previously hostile bid by 9 percent to win the Cadbury board's favor.
Hershey, based in the Pennsylvania town of the same name, is much smaller than Cadbury and has been negotiating with banks and the charitable trust that controls its shares over structuring an offer.
As well as trumping Kraft's offer, Hershey would have to pay a 118 million pound break fee and undergo a potentially lengthy regulatory review in the United States, given the two companies are already partners in international product licenses.
Charles Stanley analyst Jeremy Batstone-Carr said he was downgrading Cadbury from a "reduce" to "sell" in light of Hershey's likely exit from the race.
Batstone-Carr recommended investors switch to consumer products maker Unilever NV, which is being overhauled by new Chief Executive Paul Polman.
Around 45 percent of Cadbury shareholders are based in Britain, and are "long only," holding the shares for a reasonable period of time to make profits based on company fundamentals, rather than employing more detailed investment strategies such as leveraged bets, short-selling and technical calls.
"U.K.-based investors are unlikely to want to hold Kraft stock," said Batstone-Carr. "We believe that as many as half these holders will be unwilling or unable to hold Kraft shares and will be looking for alternative investment destinations here in the U.K."
Shaw Capital Stockbrokers highlighted the risk associated with the Kraft equity element of the offer as it also downgraded the stock to "sell."
"Should, for whatever reason, there be a mark-down or correction to U.S. equity capital markets, and so the Kraft share price in particular in the next few weeks and months, until the deal is finalised, the Cadbury investors could yet see a reduction in the London listed share price and the value of the offer," analysts said in a note.
Kraft, based in Northfield, Ill., now only needs to get the approval of 50 percent of Cadbury's shareholders, who must vote by Feb. 2, to push ahead with the takeover. While some shareholders had pressed for a higher offer, analysts widely expect the majority to follow the support of the Cadbury board.
Not all Kraft's own shareholders are happy with the deal, however. Warren Buffett, whose Berkshire Hathaway Inc. is Kraft's largest stockholder, has said the purchase is a mistake. But Buffett, who argued that Kraft is overpaying and using an undervalued stock to do so, said this week he will retain his Kraft stock.
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