Hershey Is Finally Ready to Make a Bid for Cadbury
The Wall Street Journal reports that sources close to the Hershey board say that the company will bid $17.9 billion for Cadbury. The offer, which involves Hershey borrowing $10 billion, is "75% to 80% likely." The paper also reports that the bid will come after the deadline set by the UK government for Kraft's final bid, which is January 19.
Hershey is taking a substantially greater financial risk by bidding for Cadbury than Kraft. Kraft has a market cap of $43 billion and its net income will probably come in well over $2.5 billion this year. Hershey's market cap is $8.3 billion and its net income will be less than $500 million. A $10 billion loan means Hershey will be taking on tremendous leverage, which will put much more pressure on future earnings improvement than it would for Kraft.
The key to Hershey's long-term success if it wins a bid is a strong improvement in Cadbury's earnings and the cost cuts and economies of scale that are supposed to come from big buyouts. That's a lot of "ifs" for Hershey shareholders