Which Kraft-Cadbury Divestitures Can PE Snack On?

The answer is not many.

Back when this chocolatey drama began, we speculated that private equity’s biggest role in the deal may be to snap up a few divestitures. With a deal of this size (£11.5 billion, $19.6 billion), it seemed there’d be plenty, especially if you look at past precedent.

Thanks to Anheuser Busch’s $52 billion sale to InBev, post-merger divestitures actually drove private equity activity in 2009. AB-Inbev scrambled to unload corporate orphans as a way to raise money to pay down the massive debt it took on for the merger; as a result, AB-Inbev divestitures made up three of the ten largest private equity deals of 2009. You’d think Kraft and Cadbury, striking in January what may be the largest deal of the year, would have a similar plan. According to Kraft’s executives, that’s not the case at all.

The combined companies will dominate around 15% of the confectionery industry, only slightly larger than Mars-Wrigley. As such, only two divestitures have been ordered by antitrust regulators thus far. Kraft has agreed to divest Wedel, Cadbury’s Polish confectionery business, as well as Cadbury’s chocolate business in Romania. Kraft and its new subsidiary only compete in those two countries. And as for unwanted corporate orphans, Cadbury rid itself of those a few years back, notably when it spun off its North American Beverages unit, Dr. Pepper Snapple.

In a conference call today, Kraft CFO Timothy McLevish tamped down talk of divestitures. He told investors there are no divestitures planned and he sees cash flows being sufficient to keep debt manageable. He said the only divestitures the company will make are those required by antitrust authorities, as there is no piece of Cadbury that Kraft does not want. Aw, isn’t that sweet.

Now it’s looking like PE’s only chance to get in on the snack action (snacktion? that’s bad…) is to team up with Hershey for a counter bid on this “done deal.” Hershey is desperate for an M&A play to help it expand out of the U.S., this deal was always long shot for Hershey, thanks to the company’s small size and stodgy majority-owning Trust. Even though Hershey has until Monday to top Kraft’s bid, most analysts don’t believe that’s possible and I tend to agree. Reuters reported that the U.S.-focused confectioner was unlikely to compete, citing a source familiar with the situation. Ferraro, which initially met with KKR and Blackstone Group to consider a deal for Cadbury, has since dropped out of the action.

Previously:

Private Equity Doesn’t Have A Sweet Tooth (Historically)