Kraft expected to up Cadbury bid; Chartered deal fight unlikely; Odyssey shares soar past bid

By Cristal Cody

Tupelo, Miss., Sept. 8 - Although Cadbury plc rejected U.S. food company Kraft Foods Inc.'s buyout offer valued at £10.20 billion, a 15% price increase likely could seal the deal, a market source said Tuesday.

In ongoing situations, Terra Industries, Inc. on Tuesday set the much-anticipated date for its annual shareholders meeting for Nov. 20 as CF Industries Holdings, Inc. plans its fight for board seats.

Meanwhile, Advanced Technology Investment Co. LLC of Abu Dhabi on Sunday announced a deal valued at S$2.5 billion to acquire Chartered Semiconductor Manufacturing Ltd. of Singapore. No counter bids are expected in the takeover, a market source said.

Also on Tuesday, shares of Odyssey Re Holdings Corp. on Tuesday soared past a buyout offer of $60.00 a share in cash from the company's majority stockholder, making a "modest" bid increase likely, an analyst told Prospect News.

In other deals on Tuesday, a market source said no regulatory hurdles are expected in wireless systems chipmaker Atheros Communications, Inc.'s $244 million cash and stock takeover of Intellon Corp.

The rise in merger agreements reached over the Labor Day holiday weekend was given credit by market observers to the rise on Wall Street.

The Dow Jones Industrial Average closed up 56.07 points, or 0.59%, at 9,497.34 on Tuesday.

The Standard & Poor's 500 index gained 8.99 points, or 0.88%, to 1,025.39, and the Nasdaq Composite index added 18.99 points, or 0.94%, to 2,037.77.

Kraft looks overseas

On Monday, Kraft made a stock and cash offer for U.K. candy manufacturer Cadbury, widely known in the United States as the maker of the Easter chocolate cream eggs.

Cadbury said Northfield, Ill.-based Kraft's bid of 300p and 0.2589 of a share for every share of Cadbury is inadequate.

A market source said Tuesday that this could be the "beginning of a takeover battle," but Kraft will have to offer about 15% more.

"We see several reasons why Kraft should pay more for Cadbury," the source said. "We estimate that a bid in the region of 860p per share would still be EPS accretive for Kraft, delivering material upside to both sets of shareholders."

Kraft owns products including Oscar Mayer meats, Maxwell House coffee, and Nabisco and Oreo cookies, while Cadbury owns brands that include Trident and Dentyne gums.

Cadbury's U.S.-listed shares soared to close up $14.42, or 38.49%, at $51.88 on Tuesday.

Kraft shares slipped $1.65, or 5.87%, to close at $26.45.

Terra sets showdown date

Terra said in a letter sent to shareholders on Tuesday that a deal with CF would shift Terra's focus back to ammonia production.

The company would be better off on its own, Terra said.

As of Aug. 28, the nitrogen fertilizer producer said it has a cash position of more than $1 billion, or more than $10.00 a share.

Terra said it is exploring opportunities to use the cash for acquisitions that fit with the company.

"Consistent with this approach, we are exploring potential transactions, which may include the purchase or sale of assets or a change in Terra's indebtedness or capitalization, which we believe would enhance value for Terra shareholders," Terra said in the letter.

Terra said CF's increased bid in August of 0.465 of a share of CF for each share of Terra, valued at about $3.83 billion, still undervalues the Sioux City, Iowa-based company.

Also, Terra said CF's stock price is inflated from its own hostile takeover offer by Canadian agricultural company Agrium Inc.

"We continue to believe that CF shareholders are unlikely to approve a transaction with Terra if given the alternative of the Agrium bid. We do not believe that a transaction that is consummated over CF shareholders' objections is an attractive one for Terra shareholders," Terra said.

Calgary, Alta.-based Agrium extended its tender offer of $40.00 in cash and one Agrium share per CF share to Sept. 22.

CF spokesman Terry Huch said the company did not have an immediate comment when reached Tuesday afternoon.

Deerfield, Ill.-based CF terminated its exchange offer for Terra shares on Aug. 31 since it could not close a deal without Terra's board support.

However, CF has said it intends to nominate three directors for election to Terra's board.

Terra shares fell 6 cents, or 0.18%, to close Tuesday at $32.89.

CF shares gained $1.00, or 1.16%, to $86.93.

Agrium's stock closed up $1.19, or 2.40%, at $50.80.

No delays expected for Abu Dhabi buy

Advanced Technology's offer to buy Chartered Semiconductor Manufacturing is subject to the approval of Chartered shareholders and clearance from the High Court of Singapore.

Under the terms, ATIC will pay S$2.68 a share and $18.641 for each American Depositary Share.

The total deal is valued at S$5.60 billion, with debt and convertible redeemable preference shares of S$3.10 billion as of June 30.

The transaction is expected to close in the fourth quarter.

A market source said Tuesday that the scheme of arrangement is likely to be successful and closing should happen by mid-December.

"We do not expect a counter bid," the source said. "Despite potential synergies we believe other industry buyers could be dissuaded from adding capacity in a down cycle."

The deal's main risks are potential delays, the source said.

"Although CSM does not have significant operations in China, delays could occur in obtaining the Chinese regulatory approvals," the source said. "We do not expect competition issues as ATIC is a new entrant in a competitive sector and does not have significant market share."

The Abu Dhabi government-owned company made its first acquisition in March with a controlling stake in U.S.-based Globalfoundries, a semiconductor manufacturing company, in a joint venture with Advanced Micro Devices Inc.

"By acquiring Chartered, ATIC is expanding its investments in the semiconductor industry which currently consist of a Globalfoundries' leading facility in Dresden, Germany, and a new, state-of-the-art facility under construction in upstate New York," ATIC chairman Waleed Al Mokarrab said in a statement.

Jim Norling, chairman of the board of directors at Chartered, said in the statement that given the company's "need for substantial, continued capital investment and having carefully assessed all strategic options available to Chartered, we believe this transaction provides Chartered shareholders the opportunity to realize their investment."

Temasek Holdings, a Singapore investment agency that owns about 62% of Chartered's outstanding shares, has agreed to vote in support of the transaction.

Chartered shares closed unchanged at S$2.61.

Not all fun and games in Monte Carlo

Fairfax Financial Holdings Ltd., which owns 72.60% of Odyssey Re's outstanding stock, made the unsolicited offer on Friday.

Stamford, Conn.-based Odyssey Re, a major global underwriter of property and casualty treaty and facultative reinsurance, said the company has appointed a special committee of independent directors to consider the bid.

Odyssey shares jumped $12.91, or 25.78%, to close at $62.98 on Tuesday.

Amit Kumar, an analyst with Fox-Pitt Kelton Cochran Caronia Waller LLC, told Prospect News on Tuesday that a "modest" price bump is expected.

"It's likely the deal would be sweetened a bit," he said. "A modest sweetening would be a fair takeout based on current market conditions and the overall insurance market."

Toronto-based Fairfax also plans to issue new equity to finance the deal. Fairfax said it will sell $1 billion in stock, or 2.88 million shares priced at $347.00 each, to fund the buyout.

No competition problems are expected for the transaction, Kumar said.

"If you look back at insurance deals, I really don't see any hurdles for this type of deal," he said.

Kumar notes that commentary on 2010 business expectations from the weekend's annual meeting of reinsurance executives in Monte Carlo "hasn't been very positive."

"If you factor that in, and the relative valuations after the modest sweetening, I imagine it's a fair deal," he said.

Meanwhile, Fairfax investors sent the stock down $5.53, or 1.59%, to close at $341.47 on Tuesday.

Setting up home network advantage

Atheros said it expects Intellon shareholders may choose either 0.135 of a share of Atheros stock and $3.60 in cash or choose $7.30 a share in cash; or 0.267 of a share of Atheros stock for each share of Intellon stock.

Atheros said it plans to issue about 4.2 million to 5.1 million shares of its common stock and pay $115 million to $141 million in cash to complete the deal.

The transaction is expected to close in the fourth quarter.

The deal must receive shareholder approval from Intellon investors and regulatory approvals.

An analyst told Prospect News on Tuesday that the deal lacks any regulatory concerns.

"They have a number of competitors," the analyst said. "It's beneficial for Atheros to broaden their product portfolio, and that was the intention of the deal."

Intellon shareholders representing about 22% of Intellon's outstanding stock have agreed to vote their shares in favor of the transaction, the companies said.

In a conference call to discuss the deal, Craig Barratt, Atheros president and chief executive officer, said the companies have many of the same customers.

The goal is for the combined company to leverage Intellon's home network plug-in system as the "backbone of networks," Barratt said.

Charles E. Harris, Intellon's chief executive officer and chairman of the board, said on the call that the offer has the full support of the company's board and management team.

The deal is "clearly a winner," he said. "Together we can accelerate new product advances...much faster than we could do alone."

Orlando-based Intellon makes the HomePlug high-speed circuits for home network systems.

Also on Tuesday, Santa Clara, Calif.-based Atheros raised its guidance for the third quarter ending Sept. 30.

Atheros said it now expects third-quarter earnings of 35 cents to 39 cents a share, up from previous estimates of 29 cents to 31 cents a share. The company estimates revenue of $145 million to $150 million, compared to previous guidance of $129 million to $134.60 million in revenue.

Shares of Atheros fell 55 cents, or 1.97%, to close at $27.43.

Intellon shares climbed $2.12, or 42.40%, to $7.12 on Tuesday.

Mentioned in this article:

Agrium Inc. NYSE: AGU

Atheros Communications, Inc. Nasdaq: ATHR

Cadbury plc NYSE: CBY

CF Industries Holdings, Inc. NYSE: CF

Chartered Semiconductor Manufacturing Ltd. Singapore: CHARTEREDSC

Fairfax Financial Holdings Ltd. NYSE: FFH

Intellon Corp. Nasdaq: ITLN

Kraft Foods Inc. NYSE: KFT

Odyssey Re Holdings Corp. NYSE: ORH

Terra Industries Inc. NYSE: TRA

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.