Cadbury’s resistance to Kraft finally melted away today when the price rose to 850p including dividend. Like so many “bear hugs” before it, this was an entirely predictable ending, with price being the only barrier to a deal.
But something stands out. In the small print of its announcement, Kraft said it will drop its acceptance condition from 90 to 50%. For a large public deal with so much bank debt, this is not normal behaviour. It means refinancing in the bond market could be messy and expensive. It will weigh on Kraft’s credit rating and place huge pressure to cut costs, an area where Kraft is already feeling some heat. So why do it?