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Kraft's Cadbury Bid 'will Unleash Takeover Fever'

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http://www.guardian.co.uk/business/2009/se...te-of-takeovers

Analysts believe cheap debt and corporate cash piles will usher in a new era of mega-deals

The City should brace itself for the long-stalled flow of lucrative mergers and acquisitions to come roaring back, according to bullish analysts at Credit Suisse who believe cheap debt and soaring corporate cash piles are combining to make a renaissance of mega-deals irresistible.

Experts at the investment bank believe that whether or not Cadbury eventually falls to Kraft – the British confectionery firm has already spurned a £10bn approach from the larger US firm – the City will shortly find itself at the centre of a surge in corporate dealmaking as markets stabilise and the perfect conditions for financing takeovers return.

Listing scores of potential pairings, Credit Suisse claims takeover interest in Cadbury highlights the attractiveness of businesses seen to be less impacted by the recession, with strong cash generation, low debts and good growth prospects.

Kraft's proposed takeover has prompted a wave of bullish excitement in the City not least because the American suitor had proposed to offer a cash element representing more than a third of the value of its takeover bid.

"We take it to be a sign of returning confidence that corporates are willing to finance their bids with cash," said Credit Suisse's Richard Kersley.

Among the potential marriages the bank believes to be a very real prospect are a predatory swoop by the housebuilder Persimmon for one of its rivals, possibly Bellway, Bovis or Redrow. The tobacco firm Swedish Match could fall to Imperial Tobacco, British American Tobacco or Philip Morris.

Meanwhile, the London-listed drinks multinational Diageo and the brewer SABMiller may be seeking to respond to the merger of Anheuser-Busch and InBev by exploring a marriage with Carlsberg or Heineken, both of which are loaded with debt following their break-up purchase last year of Scottish & Newcastle.

Speculation about an imminent deal bonanza came as Cadbury's chief executive, Todd Stitzer, attempted to flesh out his views on Cadbury's continued growth prospects at an investor conference at the London offices of Sanford Bernstein.

So if this happens we'll be increasing the debt pile so City bankers can take a very hefty slice of the pie to organise all of this which has been subsidised by the nice central bankers.

Question is if this happens and interest rates go back up what happens to the debt when it needs refinancing? Because as the clever people in the City know paying off debt affects your profitability so you never pay it back just roll it over.

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http://www.guardian.co.uk/business/2009/se...te-of-takeovers

So if this happens we'll be increasing the debt pile so City bankers can take a very hefty slice of the pie to organise all of this which has been subsidised by the nice central bankers.

Question is if this happens and interest rates go back up what happens to the debt when it needs refinancing? Because as the clever people in the City know paying off debt affects your profitability so you never pay it back just roll it over.

Most acquisitions destroy value for the purchaser. The roller coaster of mergers and demergers, each one a "great idea" amuses me greatly.

Yeah, more debt (although the money going to previous shareholders could presumably lead to debt repayment and therefore be neutral). The question is whether it's smart for the acquiring company.

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