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Household-brands supremo Unilever could launch a surprise bid for Cadbury, trouncing America's mighty Kraft and setting it on an ambitious new phase of growth.
The audacious plan was suggested today by respected Panmure Gordon analyst Graham Jones, who sees a chance for Unilever to become a leading player in a growing market.
Global confectionery sales have increased by more than 5% a year for the past five years but sales growth in emerging markets is running at twice that rate. Better still, Cadbury's brands — Dairy Milk, Creme Egg, Flake, Trident chewing gum and so on — command huge brand loyalty, hold their own against supermarket own brands and have a far broader distribution network than Unilever's current best-sellers.
Jones argues that opportunities to buy a company like Cadbury are few, and suggests that Unilever's capable chief executive Paul Polman would win the backing of the market.
A bid from Unilever would compare very favourably to that from Kraft. Unilever could afford 850p a share in cash and emerge with its balance sheet in better shape than Kraft's pre-bid balance sheet. And 850p may well convince Cadbury shareholders that a UK tie-up is financially and strategically better than a transatlantic merger. Jones dismisses Kraft's 725p-a-share bid as “ludicrously low. ”
Cadbury's portfolio of well-loved confectionery brands would add a significant new category to Unilever's cupboard of home, beauty and grocery names that include Flora, Domestos and Dove. It could increase earnings by 4% in 2010 and 7.6% in 2011. Cadbury was 3p higher at 789p while Unilever was 9p down at 1835p.
In London, a positive start quickly crumbled in the face of a 42% fall in profits at US corporate bellwether General Electric and a $2.2 billion (£1.35 billion) loss at Bank of America. The FTSE 100, which had climbed as high as 5272.9, was down 10.39 points at 5212.56, with investors braced for a turbulent session on Wall Street.
General Electric saw third-quarter profits fall to $2.49 billion as demand for finance and heavy equipment tumbled. The results, which would have been far worse had it not been for severe cost-cutting, shine a harsh light on the struggling US economy.
In London, a clear sign of the improving markets was sounded today by Mayfair fund manager BlueBay Asset Management, which rose 9.5p to 352.5p on the back of an impressive increase in assets under management. At the end of last month, total funds were 28% higher than at the end of the previous quarter, swelling to $31.1 billion. Chief executive Hugh Willis said that long/short funds had been “a meaningful contributor” to performance fees.
BlueBay, which specialises in derivatives and other structured products as well as more mainstream asset classes, said confidence in riskier investments was returning. Willis expects returns to reach more normalised levels in the future but warned investors that the recovery may yet disappoint.
BlueBay, which issued a dire profit warning last summer at the height of the credit crunch, hit a low of 61.75p earlier this year.
Lloyds Banking Group was up 2.54p at 93.95p after Deutsche Bank raised it to buy from hold. Most of the other winners were commodities and miners.
Major oils were boosted by positive rumblings from researchers at ING who upped the price target of BP by 10p to 635p and that of Royal Dutch Shell to 1838p from 1758p. Shell was 31p higher at 1816p and BP rose 7.9p at 563.3p. ING is advising clients to refocus on “value over volume” for oil companies, and its favourite is European play ENI. It also likes BG Group, 17p higher at 1153p, lifting the target 1p to 1140p.
Sainsbury's came down with a bump today as rumours died of a revived bid from Qatar. The grocer led the blue-chip fallers, down 9.9p at 332.6p, leaving it pretty much where it was before the bid talk started.
The collapse of the Stagecoach bid for National Express slammed the brakes on other transport groups. Arriva dropped 9.7p to 467.7p while FirstGroup slipped 9p to 406.2p with the suspicion that Spain's Cosmen family has discovered something so truly nasty and contaminating under the bonnet.
Interest in Axis-Shield was stirred by news that the US food and Dug Administration has given it the go-ahead to market its arthritis test. Axis, 5p higher at 435p, is already selling the test outside the US.
