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Chocolate Wars Heating Up

According to a WSJ report, Hershey is in talks with Ferrero on joint Cadbury bid. What’s the trade?

Hershey and privately held Ferrero have been in talks for several weeks and no bid has emerged as of yet, according to the Wall Street Journal. The developments come after Karft took its $16.7 bid for Cadbury directly to shareholders after the board rejected it as too low.

According to the Journal:

So far, talks between executives at Cadbury, Hershey and Ferraro have not produced an offer and it is unclear whether they will. The parties have been in talks for several weeks with Hershey executives more aggressive about pursuing a deal.

The discussions are in preliminary stages, however, and haven't included discussion of financial specifics. A main sticking point so far is which party would end up taking hold of Cadbury's higher-margin gum and candy businesses such as Trident and Halls.

If successful, a joint Hershey-Ferrero bid for Cadbury could help substantially build Hershey's sales outside North America and give it access to faster-growing gum and candy markets. About 85% of the Pennsylvania company's sales are in the U.S. It is unclear what strategic benefits Hershey could offer Ferrero, aside from pitching in money to beat out Kraft with a higher bid.

What’s the trade?

I’d be long Cadbury and maybe short Kraft against it, says Karen Finerman. Cadbury is a trophy property and they usually go for a nice price.





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