The efforts of Cadbury’s board to keep the company out of the clutches of Kraft (NYSE:KFT) will likely fail because no second bidder has emerged. The Times says that Kraft will make a hostile bid for the UK-based company toward the end of this week. The offer is likely to be at little or no premium to the price at which Cadbury trades now.

Kraft shareholders have every reason to resent the company’s plans to buy Cadbury. The British company is already doing well financially and there is absolutely no reason for Kraft to believe that it can add anything to that performance beyond a one-time set of cost cuts.

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Kraft trades at $27.50 which is near its 52-week high of $30.53, but there is nothing special about trading at a 52-week high as the DJIA is up 42% since the beginning of March. Kraft has badly lagged the index over that period. Its proposed takeover of Cadbury and the risks it involves, those being the same risk that accompanies any large and complex acquisition, has investors nervous.

Kraft is not doing terribly well on its own. It is expected to have EPS of $.48 for the third quarter compared to $.44 last year. Revenue is expected to fall slightly to $10.32 billion. Worse than that, Wall St. does not expect great things from Kraft in 201o. Kraft is expected to bring in $42.89 billion up only 4% from this year. EPS is expect to hit $2.15 in 201o, up from $1.97, for the year that ends December 31. That is not adequate growth to push Kraft’s stock up at a rate that outpaces that market.

Kraft might want to get its own house in order before attempting to but growth elsewhere. Kraft has $18.6 billlion in debt and taking on more for the Cadbury buyout only increases the leverage at the company during a period when the capital markets remain weakened.

Unless Kraft handily beats analysts forecasts when it announces Q3 results later this week, it has no reasonable case for pressing its Cadbury takeover. Kraft is not well run enough to take on a larger management burden. Even the stock market is saying so.

Douglas A. McIntyre

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