Unilever has the right boss, structure and balance sheet to make an audacious bid for Cadbury while Kraft continues to mull over its options, analysts at Panmure Gordon have argued.
In a note spelling out the rationale behind a Unilever bid for Cadbury, analyst Graham Jones said: “We think the current opportunity is too good to miss. There are not many opportunities to buy such an attractive asset, and Unilever has the right chief executive, right organisational structure, and right balance sheet to make an audacious move into a new category.”
The timing was also right, he claimed: “Unilever has spent most of this decade restructuring its brand portfolio, organisational structure and cost structure and we believe it is now sufficiently streamlined to be able to manage the addition of another category. Furthermore, in Paul Polman, Unilever has a chief executive who, we believe, the market would back to make a bold acquisition.”
Unlike other potential bidders such as Nestlé, Unilever would not face regulatory issues as it has no confectionery business, said Jones. It would also be able to finance an all-cash acquisition “easily”.
Buying Cadbury would strengthen Unilever’s emerging market business, he said. “Unilever has one of the best emerging markets businesses, already accounting for nearly 50% of group sales. However, this is largely based on its home and personal care platform, and adding Cadbury would give it leadership in the region in an already large and growing food category.”
Confectionery was the world’s fourth largest packaged food category, worth $150bn (at retail sales prices), and had grown at 5.3% a year over the past five years, noted Jones. “We see confectionery as highly attractive given that 40% of sales are already in the emerging markets, which have been growing consistently at around 10% a year.”
Chocolate and gum also had far lower own-label penetration than most grocery categories, higher brand loyalty, and lower exposure to the major supermarkets, he observed.
Other bidders capable of tabling a cash offer for Cadbury were PepsiCo, Coca-Cola and Procter & Gamble, he claimed. But Unilever was the best placed. “Unilever could pay 850p in cash and still have a stronger balance sheet after the bid than Kraft has before its bid.”
A Nestlé-Hershey consortium was the obvious counter bidder, as Hershey could not afford to bid for all of Cadbury, and Nestlé would not be allowed to buy Cadbury’s chocolate businesses for competition reasons. However, it would be difficult for Hershey to raise the financing for such a deal, which would also be a “complicated split to execute”, said Jones.
After its initial proposal was rebuffed by Cadbury’s board, Kraft has kept its cards close to its chest. However, it is widely expected to raise its offer to 800p-850p before the November 9 deadline set by the takeover panel. If this too is rejected, it then has the option to mount a hostile bid, appealing directly to Cadbury’s shareholders.