Kraft's chances of Cadbury takeover viewed as high; Pfizer could take hit on Japanese deal

By Cristal Cody

Tupelo, Miss., Sept. 25 - While Cadbury plc's chief executive officer reiterated on Friday that the British candy maker is not interested in a deal with Kraft Foods Inc., market observers say the company is more likely to be bought out than not.

In other situations, Pfizer Inc. reached an agreement over marketing rights for an Alzheimer's treatment drug that was triggered by its acquisition of Wyeth. The new terms, though, could be a drag on Pfizer, an analyst said Friday.

Moving over to Wall Street, equities closed down on Friday.

"The major indices did rally off the worst levels of the session but still closed down 0.4% for the day," a market observer said Friday. "In the S&P 500 sectors, all 10 closed lower with energy and health care the best performers, materials and financials the worst."

The Dow Jones Industrial Average slipped 42.25 points, or 0.44%, to 9,665.19.

The Standard & Poor's 500 index fell 6.40 points, or 0.61%, to 1,044.38, and the Nasdaq Composite index lost 16.69 points, or 0.79%, to end at 2,090.92.

Cadbury says it means no

Cadbury CEO Todd Stitzer said in a statement on Friday that a deal with Kraft does not make strategic sense.

Cadbury released the statement after comments were widely circulated in an investors note from a Bank of America Merrill Lynch investment conference earlier this week in London.

In the statement, Cadbury said that commentary had "misconstrued Mr. Stitzer's remarks to imply a softening of his view regarding a combination between Kraft and Cadbury."

Cadbury has rejected the offer of £10 billion, or 300p and 0.2589 of a share of Kraft for each Cadbury share, made by Kraft earlier this month as too low. The offer values each Cadbury share at 745p.

"For the avoidance of doubt, Mr. Stitzer does not believe that Kraft's proposal makes strategic or financial sense for Cadbury and his comments should not be interpreted in any other way," the company said Friday.

Meanwhile, Kraft CEO Irene Rosenfeld told employees that the company will not be financially reckless in the bid for Cadbury, according to a transcript of an employee town hall conference call filed on Friday with the Securities and Exchange Commission.

Rosenfeld said in the meeting that a deal with Cadbury is the "logical next step in our transformation."

A merger would "create a formidable global powerhouse in snacks, confectionery and quick meals, further expand our footprint in developing markets, and expand our presence in growing trade channels like convenience stores and gas stations," she said.

The deal would combine Kraft's brands that include Oreo cookies with Cadbury's products such as Creme Eggs and Green & Black's chocolates.

"That said, this is something we would like to do, not something that we have to do," Rosenfeld said. "And so we intend to remain disciplined in our actions."

Rosenfeld also added that though it is early in the deal process, it's "so far so good."

Emiliano Leggieri, an analyst with Pali International Ltd., said in a research note released to Prospect News that he gives Kraft's chances at buying out Cadbury at about 60%.

A takeover of Cadbury at a target price of 860p a share is given greater odds, the analyst said.

On Tuesday, it was reported that Cadbury had asked the U.K. Panel on Takeovers and Mergers to force Kraft to made a formal bid or walk away.

The legal push also could help the company hide any lack of suitors, Leggieri said.

"If Cadbury feels that the likelihood of a counter bid is slim, a faster process could keep the lack of competing offers from becoming too obvious and could allow Cadbury to lobby for a higher price," Leggieri said.

Cadbury's stock rose 5.5p, or 0.69%, to 800.5p on Friday. The confectionery company is based in Uxbridge, England.

Shares of Kraft, a Northfield, Ill.-based food company, rose 15 cents, or 0.57%, to $26.53.

Pfizer works out deal kinks

Pfizer reached an agreement with Japanese drug maker Eisai Co., Ltd. over the distribution deal for the Alzheimer's disease treatment drug Aricept.

Under the terms, Pfizer and Eisai will co-market Aricept in the United States and some markets in Europe, and Pfizer will have exclusive rights to Aricept in other countries until July 2022, Pfizer said in a statement late Thursday.

Pfizer will continue to have co-marketing rights for Aricept in Japan through December 2012, but in exchange it has given co-Japanese marketing rights to Eisai for the epilepsy and pain drug Lyrica through 2022.

Lyrica is expected to be approved in Japan, which puts Eisai "ahead of the deal," an analyst said Friday.

"This deal is a positive one for Eisai, whilst it is a damage-limitation exercise for Pfizer, which needs Aricept so as to be able to offer a complete suite of CNS [central nervous system] drugs," the analyst said.

"Pfizer keeps around $400 million in sales a year for up to three years but would probably give up $210 million a year for over 10 years of sales from a share of the Japan rights for the $2.5 billion-a-year selling Lyrica."

The distribution agreement was triggered by New York-based Pfizer's $68 billion takeover of Madison, N.J.-based Wyeth. The acquisition continues to be under regulatory review in the United States, Canada, China and Australia, but clearances are expected by late October.

Pfizer has offered $33.00 in cash and 0.985 of a share of Pfizer stock for every share of Wyeth.

Wyeth shares fell 20 cents, or 0.42%, to $47.86.

Pfizer's stock lost 4 cents, or 0.24%, to close at $16.40.

Mentioned in this article:

Cadbury plc London: CBRY

Kraft Foods Inc. NYSE: KFT

Pfizer Inc. NYSE: PFE

Wyeth NYSE: WYE

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