Kraft likely to keep mum until deadline; CIT shares sink; Analyst: MSC bids nearing ceiling

By Cristal Cody

Tupelo, Miss., Sept. 30 - Deal action continued to trend upward on Wednesday.

The Panel on Takeovers and Mergers in London gave Kraft Foods Inc. a six-week deadline to make a formal bid for British confectioner Cadbury plc or abandon the notion for six months.

Meanwhile, bankruptcy and restructuring fears sent shares of CIT Group, Inc. down on Wednesday a day after the lender's stock had soared on hopes of a merger or a new funding loan.

In other situations, investors are betting on another price increase in the bidding war for MSC.Software Corp., but an offer is not likely to go much higher, an analyst told Prospect News on Wednesday.

In regulatory action on Wednesday, Pfizer Inc. moved closer to securing all necessary antitrust approvals for its $68 billion acquisition of Wyeth. New York-based Pfizer said Wednesday that the Australian Competition and Consumer Commission had approved the deal, a day after China's Ministry of Commerce gave its clearance. The transaction now awaits U.S. and Canadian regulatory approvals.

Pfizer said Wednesday it "expects to obtain these approvals shortly and to close the transaction early in the fourth quarter 2009." Shares of Madison, N.J.-based Wyeth closed at $48.58, down 7 cents, or 0.14%, while Pfizer's stock dropped 22 cents, or 1.31%, to $16.55.

Looking to Wall Street, stocks reversed early afternoon gains and closed down on Wednesday.

The Dow Jones Industrial Average fell 29.92 points, or 0.31%, to 9,712.28.

The Standard & Poor's 500 index lost 3.54 points, or 0.33%, to 1,057.07, while the Nasdaq Composite index closed down 1.62 points, or 0.08%, at 2,122.42.

Kraft must 'put up or shut up'

The Panel on Takeovers and Mergers said in a statement on Wednesday that Kraft has until Nov. 9 to either make a firm offer or announce it will not bid for Cadbury.

The panel made the decision after Cadbury asked the agency to force Kraft with a "put up or shut up" request after the British candy maker rejected Northfield, Ill.-based Kraft's offer.

Kraft offered £10 billion in cash and stock, or 300p and 0.2589 of a share of Kraft for each Cadbury share, in late August. The bid values Cadbury at 745p a share.

"Cadbury has a strong position in the global confectionery market and the board is confident in Cadbury's stand-alone pure play strategy and growth prospects," Roger Carr, Cadbury's chairman, said in a statement on Wednesday. "We have made our position on Kraft's proposal very clear and we welcome the panel's decision today in the interests of obtaining clarity and certainty for our shareholders and employees at the earliest opportunity."

Cadbury, which traces its history to 1824, produces brands such as Green & Black's chocolates and Dentyne, Clorets and Trident gums.

Kraft manufactures a wide variety of products, including Oreo cookies and Ritz crackers.

Emiliano Leggieri, an analyst with Pali International Ltd., said Wednesday in an investors note that Kraft is not likely to drop its bid ahead of the panel's deadline.

"However, it would be worth reassessing this stance if there is no relevant news flow in the next three weeks," he said.

Kraft has three options: walk away, launch a recommended bid or go hostile, Leggieri said.

"We would be surprised if Kraft walks materially ahead of the PUSU date," he said. "We believe that the optimal strategy for Kraft in this scenario is to increase its offer approach well ahead of the PUSU deadline. A bump would put pressure on Cadbury's board and give Kraft time to assess whether it is worthwhile to sweeten again, go hostile or walk."

However, if Kraft decides to turn hostile, "it would make sense for Kraft to say nothing until the PUSU deadline," Leggieri said. "Investors in Cadbury will inevitably become more nervous considering the potential downside if Kraft walks (pre-approach Cadbury was trading at 570p/share, 29% below the current price)."

Cadbury and Kraft are expected to post third-quarter sales figures in October.

Cadbury shares added 4p, or 0.50%, to close at 803p.

Kraft's stock rose 25 cents, or 0.96%, to $26.27 on Wednesday.

CIT investors worry

CIT shares plunged 99 cents, or 45%, to close Wednesday at $1.21 on reports the lender may file for bankruptcy protection or give its bondholders a stake in exchange for eliminating debt.

The New York-based lender to small and mid-sized businesses has more than $30 billion in outstanding debt.

Sameer Gokhale, an analyst with Keefe, Bruyette & Woods, Inc., told Prospect News that CIT must find some type of long-term solution.

"It is possible the company through some order of debt exchange or equity offering could strengthen their balance sheet," he said. "Maybe that's what regulators are looking for."

Is MSC bidding war over?

MSC.Software said Tuesday that private equity firm Symphony Technology Group LLC raised its buyout offer for the company to $8.40 a share in cash.

Symphony's offer, valued at about $391 million, bests a bid made by an unnamed group of third-party private equity firms.

MSC will hold a special shareholders meeting on Oct. 9 to vote on the proposal.

Palo Alto, Calif.-based Symphony had reached a deal in July to acquire the Santa Ana, Calif.-based simulation and software company for $7.63 a share.

The unnamed private equity firms made a competing bid for $8.00 a share, which Symphony matched. The bid was bumped again by the firms to $8.15 a share on Sept. 16 and then to $8.30 a share on Sept. 22.

MSC told Prospect News in September that the company is bound by nondisclosure agreements and cannot disclose the names of the competing bidders.

Under the new deal terms, Symphony increased the termination fee to $13 million from $11.8 million and the reverse termination fee to $40 million from $16.8 million, according to a proxy supplement filed on Wednesday with the Securities and Exchange Commission.

Kevin Liu, an analyst with B. Riley & Co., Inc., told Prospect News on Wednesday that some investors may think there's more action to come.

"At this point, it looks like there's only two bidders, and with the bids they're offering, it's not likely to get up high," he said. "In normal times, they could get a higher offer than what they're getting now. But times have changed a bit and there's not as much financing out there, so I don't think we'll see what people used to pay for these companies."

MSC shares traded as high as $8.45 on Wednesday before the stock closed up 1 cent, or 0.12%, at $8.41. The stock has traded from $3.98 to $11.02 over the past year.

Mentioned in this article:

Cadbury plc London: CBRY

CIT Group, Inc. NYSE: CIT

Kraft Foods Inc. NYSE: KFT

MSC.Software Corp. Nasdaq: MSCS

Pfizer Inc. NYSE: PFE

Wyeth NYSE: WYE

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