Analysts see 95% chance of Kraft making hostile bid for Cadbury

The chance of Kraft Foods Inc. making a hostile offer for bid target Cadbury Plc was rated at 95 percent today by analysts at Icap Plc.

There is only a 5 percent possibility that Kraft Chief Executive officer Irene Rosenfeld will walk away from the deal, Tai Mey Lim, a risk arbitrage analyst at Icap in London, said in a note. Increasing the terms of its cash-and-stock proposal by 20 percent would be a "knockout blow," the analyst said.

Lim put the probability of a white knight bidder emerging at about 15 percent, and said Cadbury is unlikely to look to "spoiling tactics" such as seeking a merger with Hershey Co.

Kraft's projected synergies of $625 million annually from buying Cadbury are "materially too low" and may reach "in excess of $800 million," meaning the bidder has room to raise its offer to between 850 and 900 pence a share, Icap said. A bid of more than 900 pence would be "hard" as it would endanger Kraft's investment grade credit ratings, Lim said.

"We can only presume that in submitting her low-balled initial offer that Rosenfeld was advised that it was unlikely that a counter-bid would materialize," Lim said. "We believe that Kraft will go hostile if they have to."