Blog: A Long, Sickening Chocolate War

When you have an initial bid rejected as derisory it is probably not a good idea to come back with a lower offer expecting a big change of heart from your prey.

This though is exactly what the management team at Kraft has decided to do in bid to win control of UK rival Cadbury .

Because of the rise in Cadbury's share price, the bid now values its shares at 713 pence or 9.8 billion pounds ($16.44 billion) compared with 745p a share, or 10.2 billion pounds, in September, when Kraft made the same offer.

Cadbury’s CEO and Chairman have been very quick to dismiss the bid, fresh from telling a number of reporters over the weekend that they see no reason to join with a company that has traditionally been low growth and is now 'no growth'.

Cadbury itself last month unveiled very strong trading numbers.

A number of Cadbury's major shareholders have backed the management team's strategy, giving the impression that Kraft’s offer is dead in the water.

Why, you ask, would the management team at Kraft attempt such a strategy? There can be only two reasons as far as I can see.

1. With a 'put up or shut up' order in place, failure to put in a new offer would have forced them to walk away from the offer for 6 months. As a result, they have put the bid in with the intention of raising the offer at some point down the road when, if they are lucky, the pound could be even weaker boosting the value of its offer.

2. They plan to flush out any rival bidders. Given that the likes of Unilever and Nestle have yet to come to the table, the chances of a counter offer look remote. Kraft may be betting that if another bidder does not emerge and the stock market moves lower, the bid on the table will become more attractive to Cadbury shareholders.

Kraft Macaroni.jpg

Martin Deboo, an analyst at Investec in London, told CNBC on Monday that he believes no other bidders will emerge and now expects a very long and drawn-out takeover battle.

The lawyers and M&A advisors will do well out of this story. Cadbury's and Kraft's rivals could do well out of this story, with management at both companies focused on a bid that will never succeed.

The rest of us, including shareholders in both companies, could simply feel like we have eaten too much chocolate…