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John Paulson as Sweet on Cadbury as Kraft is Hostile
by Christopher Glynn ,Senior Reporter, November 11, 2009
John Paulson bought up Cadbury on Tuesday as the candy-maker rebuffed would be suitor Kraft.
Spurned Kraft readied a hostile takeover after Cadbury turned down its $16 billion offer in September. Cadbury called the initial bid “derisory” and said the subsequent shareholder offer devalued the company.
Paulson is head of Paulson & Co., which revealed it owned more than 2% of Cadbury. The Kraft-Cadbury nonstarter has piqued hedge fund interest. In addition to Paulson & Co., Eton Park Capital Management and York Capital Management have stocked up on Cadbury.
London-headquartered chocolatier Cadbury is also the maker of Dentine and Trident chewing gum. Cadbury is an attractive acquisition for Kraft because it would give the Illinois company, the second largest beverage and food processor in the world, a foothold in the confectionary business as well as a market presence in India and South Africa. Cadbury, meanwhile, has stated its desire to remain independent. Stock in Cadbury topped $50 per share on the New York Stock Exchange Wednesday. Kraft is in the closing stage of a multiyear restructuring.
A bear call on the housing market made Paulson a star hedge fund manager. After brainstorming with then portfolio manager Paolo Pelligrini, Paulson bet against subprime mortgage, a trade that upped Paulson & Co. from $10 billion to $35 billion in September 2008. Pelligrini in October set out to open his own hedge fund.
But Paulson might not have bought up Cadbury because of the Kraft offer. He had stocked up on the London Stock Exchange when Nasdaq availed itself as a possible acquirer. The deal fell through, but Paulson held on to LSE, turning a profit after betting that the stock exchange would boost its market value on its own.
Also, slow dealflow and lost clout has decreased hedge fund involvement in M&A. The asset class is coming off its worst annual performance. In 2008, the HFN Hedge Fund Index lost 15.75%.
Paulson worked at Bear Stearns before founding his hedge fund in 1994. A spokesman for Paulson & Co. in New York declined comment.
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POLL OF THE WEEK
July 27, 2010
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