Investors not bullish on Exxon purchase; confidence grows in Kraft bid; ON uses cash for deal

By Cristal Cody

Tupelo, Miss., Dec. 14 - Exxon Mobil Corp. said Monday it will acquire XTO Energy Inc. for $31 billion in stock in a bullish bet on natural gas, but it's a bet that some analysts find troubling.

In other situations on Monday, British confectioner Cadbury plc reiterated its rejection of a $16.5 billion union with Kraft Foods Inc. and hinted of other bidders.

Some Kraft investors, though, are growing more confident a deal will be done at a lower price in the absence of a solid rival bidder, an analyst told Prospect News.

Also on Monday, shares of California Micro Devices Corp. climbed 53.11% after ON Semiconductor Corp. said it will start a tender offer for shares at $4.70 each in cash.

Meanwhile, the Exxon Mobil deal was credited with helping to lift stocks on Monday.

The Dow Jones Industrial Average added 29.55 points, or 0.28%, to close at 10,501.05.

The Standard & Poor's 500 index rose 7.70 points, or 0.70%, to 1,114.11, and the Nasdaq Composite index closed up 21.79 points, or 0.99%, at 2,212.10.

Exxon looks decades ahead

Exxon said Monday that the acquisition of XTO will boost its position in the development of unconventional natural gas and oil resources.

The total deal is valued at $41 billion, which includes $10 billion in existing XTO debt.

Under the terms of the agreement, approved by the boards of both companies, Exxon will issue 0.7098 of a share for each share of XTO. The offer represents a 25% premium based on the stocks' closing prices on Friday.

The deal, expected to close in the second quarter, is subject to approval by XTO investors and regulatory clearances.

Fort Worth-based XTO is an oil and natural gas producer in the United States.

Irving, Texas-based Exxon, the largest publicly traded international oil and gas company, stressed that the deal's benefits are long-term.

Rex W. Tillerson, Exxon's chairman and chief executive officer, said on a conference call with analysts on Monday the acquisition is not about the near-term.

"In fact, we'll probably suffer in the near-term as we put it together. This is about the next 10 to 20, 30 years," he said. "That's the real value creation we see."

Tillerson said Exxon chose to structure the deal as an all-stock transaction to make the exchange tax-free.

As for future deals, Tillerson said Exxon is "always looking. We're never in a big hurry."

XTO shares jumped $6.37, or 15.35%, to close Monday at $47.86, while Exxon's stock slipped $3.14, or 4.31%, to $69.69.

Jim Byrne, an analyst with BMO Capital Markets Corp., told Prospect News on Monday that it wasn't surprising to see Exxon shares fall on the news.

"People get a little concerned when they see big transactions from an all-stock perspective, and they may be a little bit concerned they're making a bigger bet on natural gas," he said.

"We're concerned in particular about the 2010 outlook," Byrne said. "With Exxon making this transaction, it could impact their bottom line in 2010. It's probably a better deal from XTO's standpoint."

Cadbury stands ground

The maker of Cadbury chocolate crème eggs and Trident and Dentyne gums said Monday in an investors update that it has received indications of interest for a transaction.

In November, Hershey, Pa.-based Hershey Co. and private Italy chocolate maker Ferrero International SA said they were considering making bids for the company.

Cadbury on Monday also published its formal "defense document" to Kraft's bid, valued at 727p a share.

"Cadbury is an exceptional business worth much more than the offer put forward by Kraft," Roger Carr, Cadbury's chairman, said in the document sent to shareholders.

Kraft has offered Cadbury shareholders 300p in cash and 0.2589 of a share of Kraft per Cadbury share.

One analyst told Prospect News on Monday that Kraft has good reason to be confident so far.

"As long as another bidder doesn't emerge, there's no reason for Kraft to bid against itself," the analyst said. "The confidence goes up every day that there isn't a competing bid."

Cadbury shares rose 4.5p, or 0.57%, to 795p on Monday.

Kraft's stock rose 18 cents, or 0.67%, to $26.97.

Hershey's stock added 11 cents, or 0.31%, to end trading at $36.13.

ON wants California Micro

ON Semiconductor said it will acquire California Micro Devices in a deal valued at $108 million.

The Phoenix-based chipmaker plans to start the tender offer by Dec. 29. The transaction is expected to close in the first quarter.

"This acquisition is directly aligned with both our strategic and financial goals," Donald Colvin, ON's chief financial officer, said in a statement. "The transaction value represents approximately 1.6 times trailing twelve month sales plus cash. Given the significant synergies we expect to realize from this combination, we anticipate that the acquisition will be accretive to earnings per share within the first year post the transaction close."

California Micro Devices is a leading supplier of circuit protection devices for the mobile handset, consumer electronics and computer markets.

Shares of the Milpitas, Calif.-based company soared to close up $1.62, or 53.11%, at $4.67 on Monday.

ON's stock increased 40 cents, or 4.93%, to $8.51.

Mentioned in this article:

Cadbury plc London: CBRY

California Micro Devices Corp. Nasdaq: CAMD

Exxon Mobil Corp. NYSE: XOM

Hershey Co. NYSE: HSY

Kraft Foods Inc. NYSE: KFT

ON Semiconductor Corp. Nasdaq: ONNN

XTO Energy Inc. NYSE: XTO

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