Nestle linked with Cadbury amid rumours of higher Kraft bid

Nestlé's £17bn sale of its Alcon stake gives it plenty of firepower to get involved in the Cadbury bidding.

Last Updated: 06 Nov 2012

Two bits of good news for Cadbury shareholders: rumour has it that Kraft is preparing to increase its existing £10bn offer for the UK chocolate-maker, while Nestle - long considered a potential counter-bidder - is suddenly rolling in cash after selling off its stake in eyecare business Alcon for an eye-watering £17.4bn, and as a result is also being linked with a bid. Admittedly Nestle has always insisted that it's not interested in deals of this size - but it might be persuaded to join forces with someone else. Either way it might encourage Kraft to be a little more generous...

Reports in the Sunday papers suggested that Kraft is planning to raise its bid before the January 19 deadline - its current offer is worth less than 740p a share, but Cadbury is now trading just below the 800p mark and is apparently looking for a bid north of this. So far Kraft has been given short shrift by Cadbury - but if CEO Irene Rosenfeld does stump up more cash (and there's no guarantee she'll go much higher, given her previous insistence that she won't be held to ransom), the UK firm will come under a bit of pressure from shareholders to play nicely.

Any other potential bidders - notably US firm Hershey, with whom Cadbury says it would prefer to hook up - will probably steer clear until Kraft reveals its hand. But the timing of today's deal by Nestle has certainly raised a few eyebrows; with £17.4bn now burning a hole in its bank account, the food giant has plenty of cash available for a tilt at Cadbury, should it so desire.

The only catch is that it keeps saying that it's not interested; it's insisted that it's only looking at smaller bolt-on acquisitions around the £1bn mark, rather than mega-deals like this one, with the mega-hassles they usually entail. In fact, it suggested it would use the proceeds of today's deal for a share buy-back.

But there is another option. Hershey is clearly on the lookout for a bid partner, having already spoken to Italian rival Ferrero. And analysts reckon that Nestle would be keen on Cadbury's chewing gum business (having lost out to it in the battle for Trident a few years back). So a joint offer could be a goer.

On the other hand, it may be just as easy for Nestle to stay out of this altogether and buy the chewing gum business off Kraft once that deal goes through - in which case it won't want to push the price up any higher. Either way, the Cadbury board is likely to have plenty to chew over in the coming weeks.

In today's bulletin:

Britain's Top 100 Entrepreneurs 2010: Petrofac's Ayman Asfari rises to the top
Nestle linked with Cadbury amid rumours of higher Kraft bid
'Puerile' Ryanair starts 2010 as it means to go on
Civil servants earn 7% more than private sector workers
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