Kraft Foods, Inc. Chief Executive Officer, Irene Rosenfeld, is walking a tight wire in negotiations to buy Cadbury Plc. She is trying to please Cadbury investors, but is receiving criticism by Kraft investors, like Warren Buffet, who says the takeover is diminishing its merit by paying too much stock for the deal. The current cash-stock offer of 11-billion pounds (or $17.9 billion) values the U.K. chocolate manufacturer at 771 pence, while the January 18, 2010 price was 808 pence. In an early January announcement, Kraft said it would use the proceeds from a $3.7 billion sale of pizza brands DiGiorno and Tombstone to Nestle SA as a 60 pence cash boost to its current 300 pence cash component of the Cadbury bid.
1. Based on the total cash-stock offer, what is the exchange rate of pounds to dollars?
2. How many pence are currently in a pound?
3. If Kraft stock is trading for $29.58 in New York Stock Exchange on Jan. 15 and the current offer for Cadbury is 300 pence in cash and 0.2589 Kraft share, what is the offer in U.S. dollars?
4. If Kraft boosts their offer to 360 pence in cash plus the same amount of stock, what is the offer in U.S. dollars? What percent change is there between the current and the proposed offer?
Stanford, D.D., A. Cleary, and Z. Midler. (2010). “Kraft’s ‘Wiggle Room’ to Win Cadbury Must Be in Cash,” Bloomburg.com (Retrievable online at http://www.bloomberg.com/apps/news?pid=20601087&sid=a.xao4In8JiA&pos=5)