Kraft bid offers taste of takeover revival

Kraft Foods' £10.2 billion ($24 billion) bid for Cadbury may be a sign that Europe's frozen takeover market is beginning to thaw after the slowest August in five years.

Kraft, the maker of Oreo cookies, said on Monday it would pursue the acquisition after the British maker of Dairy Milk chocolate rejected the offer.

The £7.45-a-share proposal may trigger a competing offer from Nestle and Hershey, forcing Kraft to increase its bid, according to Warren Ackerman, an analyst at Evolution Securities in London.

The acquisition would be the biggest cross-border deal this year and follows the US$21 billion ($30.3 billion) of European takeovers announced in August, according to data compiled by Bloomberg.

Companies are revisiting plans for mergers that had been shelved during the credit crisis amid signs the recession may be easing. The MSCI World Index has gained 58 per cent since hitting a 14-year-low in March, making it easier for firms to fund takeovers with stock.

"With equity prices higher, you have increased confidence in the corporate sector and intra-industry mergers are likely," said Peter Hahn, a former managing director at Citigroup who now lectures on corporate finance at London's Cass Business School.

In Europe, Deutsche Telekom, the region's biggest telephone company, and France Telecom are close to an agreement to merge their UK units and create the country's largest mobile-phone operator, two people familiar with the matter said.

The two companies may announce the combination soon, said the people, who declined to be identified.

Investors in Zain, Kuwait's biggest telephone company, are near to selling a 46 per cent stake for almost US$14 billion, according to National Investments, which is advising the sellers.

Marvel, Skype Companies worldwide have led US$36 billion of takeovers in the past 10 days, according to Bloomberg data.

Walt Disney agreed last week to buy comic-book creator Marvel Entertainment for about US$4 billion.

The same day, Baker Hughes agreed to buy BJ Services for US$5.5 billion in the largest oilfield-services company takeover since 1998.

EBay agreed a day later to sell 65 per cent of its Skype internet-calling unit to a group led by firm Silver Lake for about US$2 billion.

The flurry of takeovers shows that "confidence in the corporate sector has risen off the floor, where it was a year ago," Lucy MacDonald, who manages US$6.8 billion as chief investment officer at RCM UK, told Bloomberg.

"Secondly, corporate balance sheets have recovered quite significantly in the last year. We'd expect to see M&A picking up from relatively low levels."

Mergers and acquisitions fell 42 per cent in the US in the first half, 50 per cent in Asia and almost 60 per cent in Europe as the credit crisis choked off financing and cut the pace of deal-making to the slowest since 2003, Bloomberg data show.

Globally, companies have led US$993.6 billion of takeovers this year, a 46 per cent drop from the same period last year.

Morgan Stanley is the top adviser on deals announced this year, followed by Goldman Sachs Group and JPMorgan Chase.

Europe has lagged behind the US in takeover activity this year. US firms have announced US$420 billion of acquisitions, compared with European companies' US$376 billion of takeovers.

Debt financing for acquisitions is also becoming more readily available. US investment-grade companies sold US$810 billion of bonds this year, 33 per cent more than in the same period in 2008, Bloomberg data show.

European borrowers sold more than US$2.2 trillion of bonds this year, a 38 per cent increase from the period a year earlier.

"On the investment grade debt market, there is plenty of availability for the right companies," Hahn said.

Deutsche Telekom, Zain Deutsche Telekom and France Telecom's planned merger of their UK divisions would allow them to slash costs by combining networks and cutting jobs.

A deal would reduce the number of mobile-phone operators in the UK to four.

Zain's shareholders last month agreed to end ownership restrictions on the company, paving the way for a foreign or local investor to own a majority.

Spain's Telefonica agreed on Monday to pay US$1 billion to boost its stake in China Unicom to 8.1 per cent from 5.4 per cent, raising its investment in the world's biggest communications market.

Telefonica, Europe's second-largest phone company, also agreed to sell shares with an equal value to Unicom.

Cadbury, based in Uxbridge, London, said Kraft's bid "fundamentally" undervalued the company.

The stock soared 38 per cent in London trading, pushing the chocolate-maker's market value above Kraft's offer price.

Evolution's Ackerman said a purchase would allow Kraft to match Mars's 15 per cent share of the global candy market. He said Cadbury might be worth as much as £12 a share.

"There are a number of large corporations around the world that have a conservative balance sheet and access to cash that could do deals similar to this in various industries, and they have been sitting on the sidelines for months now," Cass Business School's Hahn said. "There is very strong traditional, industrial logic behind this deal."

- BLOOMBERG