Kraft's potential to go hostile grows; CF shares lose premium; IMS shares soar on LBO

By Cristal Cody

Tupelo, Miss., Nov. 5 - Kraft Foods Inc. is focused on paying the lowest possible price and is more likely to go hostile rather than walk away from a takeover of British confectioner Cadbury plc, an analyst said Thursday.

Meanwhile, Agrium Inc. on Thursday bumped its offer for CF Industries Holdings, Inc., which hasn't given up on its own hostile takeover attempt for Terra Industries Inc.

CF's shares fell almost 8% as investors sold off the stock on certainty the company will reject the bid, an analyst told Prospect News.

In other situations, JDA Software Group, Inc. should gain the debt financing for the $18.00-a-share cash-and-stock acquisition of i2 Technologies, Inc., with the potential of a counter bid as the only slight risk to the deal, an analyst said in an interview on Thursday.

Also on Thursday, shares of IMS Health Inc. soared after the Norwalk, Conn.-based company said it will be bought out for $22.00 a share in cash in what's considered to be the largest leveraged buyout deal this year.

Meanwhile, equities climbed on Thursday and sent the Dow Jones Industrial Average back above 10,000.

The Dow closed up 203.82 points, or 2.08%, at 10,005.96.

The Standard & Poor's 500 index added 20.13 points, or 1.92%, to finish at 1,066.63, and the Nasdaq Composite index closed up 49.80 points, or 2.42%, at 2,105.32.

Kraft must decide by Monday

Kraft must announce by 5 p.m. on Monday a firm intention to make an offer for Cadbury or that it will not bid. If it does not make an offer, Kraft is prevented from bidding for Cadbury for six months, according to the U.K. Panel on Takeovers and Mergers.

Cadbury rejected Northfield, Ill.-based Kraft's proposal in August of £10 billion in cash and stock, or 300p and 0.2589 of a share of Kraft for each Cadbury share. The initial offer valued Cadbury shares at 745p each, but a drop in Kraft's stock has since pushed the value down.

On Tuesday, Kraft reported weaker sales and said the company will maintain fiscal discipline in its acquisitions.

"This could come as a disappointment for Cadbury shareholders, [but] we see no incentive in sweetening the bid now," the analyst said. "We believe the most likely scenario at this stage is for Kraft to make a hostile bid at the terms of its rejected approach, now worth 723p a share."

Cadbury's stock slipped 4p, or 0.52%, to 762p.

Kraft shares rose 36 cents, or 1.35%, to $27.03 on Thursday.

Agrium raises bid

Shares in CF lost $6.49, or 7.51%, to close Thursday at $79.90 after Agrium raised its takeover bid.

Edlain Rodriguez, an analyst with Broadpoint Amtech, Inc. told Prospect News on Thursday that the stock fall shows investors' lack of confidence in the bid.

"Investors are thinking CF will probably reject that deal," he said. "As a result, any premium that was embedded in CF stock just essentially disappeared."

Agrium raised its bid for CF by $5.00 to $45.00 a share in cash plus one share of Agrium per CF share, for a total value of $92.99 a share. The exchange offer now is open through Nov. 18.

Agrium president and chief executive Mike Wilson said Thursday in the statement that the latest bid in a series made since February 2009 is the Calgary, Alta.-based company's "best and final offer."

As of Wednesday, about 8.6 million outstanding shares of CF had been tendered in Agrium's exchange offer.

Deerfield, Ill.-based fertilizer nutrient producer CF said in a statement on Thursday that the company will review the latest proposal but that "Agrium's offer represents substantially lower multiples of EBITDA than CF Industries' offer for Terra."

Meanwhile on Thursday, Sioux City, Iowa-based nitrogen producer Terra urged shareholders to reject CF's three nominees to Terra's board at its annual shareholders meeting on Nov. 20.

Terra has rejected all six of CF's takeover proposals made since January 2009, including the latest one for $32.00 a share in cash and 0.1034 of a share of CF per Terra share.

The potential is growing for "none of the companies" to complete a deal, Rodriguez said.

"Given that Terra has already rejected that deal, it's going to be hard for CF to get their slate nominated," Rodriguez said. "Agrium's deadline is before that vote, so it definitely puts more pressure on CF."

Shares of Terra closed up 46 cents, or 1.29%, at $36.00 on Thursday.

Agrium shares rose $1.82, or 3.79%, to $49.81.

JDA holds on to i2

Shares of i2 added $1.24, or 7.51%, to close Thursday at $17.75 on the buyout news.

JDA's offer represents a premium of about 9% to Wednesday's closing stock price.

"The premium at first glance doesn't look very big, given they're going to have stock in the entity," Jeff Van Rhee, an analyst with Craig-Hallum Capital Group LLC, told Prospect News on Thursday.

Other than the financing, only slight risks remain, "namely other bidders" for Dallas-based i2, since JDA should receive the debt financing to complete the $434 million buyout, Van Rhee said.

"As the Street looks at it, I think they will wholeheartedly support the deal," he said. "It's a nice accretive to JDA shareholders. It has very clear benefits."

The supply chain solutions companies sought a merger last year, but the deal fell apart when Scottsdale, Ariz.-based JDA could not complete the financing.

"Everybody realizes the primary reason we were unable to conclude the transaction last year was because of the issues we suffered with what was going on in the global financial market," JDA CEO Hamish Brewer said on an investor's conference call on Thursday. "I don't think the fundamental strategic rationale for integrating JDA with i2 has changed much in a year, but what has changed is the condition of the financial markets. We've been extremely diligent to make sure we have a secure mechanism to close this transaction."

The company has two alternative plans to complete the merger.

Under the intended structure, JDA plans to raise $275 million of senior unsecured notes by Dec. 18. If JDA raises the sufficient funds, it will pay i2 shareholders $12.70 a share in cash and 0.256 shares of JDA.

If JDA cannot raise the funds, it plans to launch an alternative structure to finance the merger with a $120 million term loan and $20 million revolving credit facility commitment from Wells Fargo Foothill and Wells Fargo Securities. Under the alternative structure, JDA will pay i2 shareholders $6.00 a share in cash and 0.580 shares of JDA.

"We've been extremely careful to structure this transaction so that it absolutely minimizes the failure to close," Brewer said.

The boards of each company have approved the transaction.

The offer must be approved by i2 shareholders and clear the Hart-Scott-Rodino federal antitrust waiting period. If the transaction proceeds with the alternative structure, approval by JDA shareholders also will be required.

The takeover is expected to close in the first quarter of 2010.

The deal includes a termination fee of $30 million if JDA fails to close the merger due to lack of financing.

JDA shares closed up $1.38, or 6.67%, at $22.08 on Thursday.

IMS takes buyout offer

Private equity firm TPG Capital and the Canada Pension Plan's investment board plan to buy out pharmaceutical and health-care market intelligence provider IMS in a leveraged buyout valued at $5.2 billion, including the assumption of debt.

IMS shares jumped $3.92, or 23.32%, to close at $20.73 on Thursday.

The bid represents a premium of 31% to IMS' stock price on Wednesday and a 50% premium to the closing stock price on Oct. 16, the last day of trading before IMS announced it was considering strategic alternatives.

The deal has fully committed debt financing from Goldman, Sachs & Co.

"This transaction enables our shareholders to realize substantial value from their investment in IMS with an immediate cash premium, while at the same time strengthening our position to capture long-term growth opportunities," IMS chairman and CEO David R. Carlucci said in a statement.

The transaction must be approved by IMS investors and receive antitrust clearances.

The companies expect the offer to close by the end of the first quarter of 2010.

"CPPIB and TPG are like-minded, long-term investors and we look forward to working together and in partnership with management to help grow the business," Mark Wiseman, senior vice president of private investments for CPP's investment board, said in the statement.

Additional information was not available by press time on Thursday.

Mentioned in this article:

Agrium Inc. NYSE: AGU

Cadbury plc London: CBRY

CF Industries Holdings, Inc. NYSE: CF

IMS Health Inc. NYSE: RX

i2 Technologies, Inc. Nasdaq: ITWO

JDA Software Group, Inc. Nasdaq: JDAS

Kraft Foods Inc. NYSE: KFT

Terra Industries Inc. NYSE: TRA

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