Peltz Finds A Partner To Fund His Sweet Tooth

Tickers in this Article: TRY, MER, C, WEN, CSG

The unraveling of U.S. credit markets and the subsequent tightening of lending practices seems like it should be bad news for all companies, but there are a few CEOs who were no-doubt relieved at this turn of events.

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If your firm is the target of an unsolicited takeover, signs the money taps have been turned off is welcome news indeed. Those taps have filled many a corporate raider's war chest. (For added insight, see Investing During Uncertainty and Bloodletting And Knights: A Medieval Guide To Investing.)

Cadbury's Vey Brief Reprieve
Cadbury Schweppes' (NYSE:CSG) senior executives probably felt some relief as developments at the end of November meant activist shareholder Nelson Peltz could be running out of funding. Peltz, who acquired a 3% stake in Cadbury earlier this year, has pushed for meaningful change in the company's operations to boost profitability. Some industry pundits have even suggested that the company's decision to sell-off its North American drinks business was a direct result of Peltz's lobbying.

Bankers Bailout From Wendy's Deal Appeared To Blunt Raider's Attack
Late in November, Peltz's plans to acquire another food company, Wendy's (NYSE:WEN) suffered a setback when he failed to secure funding commitments from Citigroup (NYSE:C) and Merrill Lynch (NYSE:MER) - two of the more notable casualties of the sub-prime meltdown. The fundng would have allowed Peltz's flagship holding company, Triarc Companies (NYSE:TRY), to bid aggressively for Wendy's which has been on the auction block since last April, attracting the interest of several private equity firms. Wendy's currently has a market value of about $2.4 billion.

With the apparent collapse of Peltz's Wendy's deal, the heat was taken off the executive suite at Cadbury. With his funding drying up, Peltz would be unlikely to up his stake in the U.K. drinks and confectionery group, thus applying even more leverage on management. However, that all changed in a matter of a few days.

Arrival of New Mideast Money Sets The Stage For Major Bid
On December 11, the Financial Times of London reported that Peltz had cut a deal with the Qatar Investment Authority (QIA) to boost his stake in Cadbury. Trian, the private equity fund controlled by Peltz, recently formed a special-purpose vehicle with QIA, which allowed it to up its stake in Cadbury from 3.4% to just under 5%. While it would appear that Peltz and the QIA have little in common, the QIA earlier this year made a bid to take British grocer Sainsbury Plc (which has an enterprise value $19 billion) private.

So where can this arrangement go from this point?

According to a follow-up research piece by the brokerage arm of Bank of America (NYSE:BAC), Peltz and his newfound backers could be preparing a bid for the lucrative Cadbury confectionary business, which is estimated to be worth about $17 billion. Such a deal could happen as early as the first half of next year, according to the report.


The Bottom Line
The QIA's partnership with Peltz puts some serious money on the table for a possible Cadbury deal. The sovereign fund has $60 billion and is no doubt keen to show it has the same deal-making savvy like its neighbours in Abu Dhabi and Dubai. Closing a major deal like Cadbury, could be the ticket that lets them to move their marker up in the regional investment league tables. Cadbury looks to be in play and that means its shares are likely to move higher.

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