In merger parlance, it is called the Pac-Man defense, as the prey suddenly becomes the predator.
Cadbury has a secret defense against Kraft if no white knight comes along to save it from a too-low takeover bid by the food giant.
The British chocolate maker is considering turning around and making a bid for Kraft’s smaller confectionery business.
Cadbury could afford the acquisition, and it makes strategic sense, said a source with knowledge of Cadbury’s thinking.
“If I were advising Cadbury, I’d say let’s bid for Kraft’s confectionery business,” said a consumer banker. “How about that, a public Pac-Man?”
For the moment, the move is not necessary.
Hershey is emerging as a possible rival bidder for Cadbury, sending Cadbury’s shares to a 52-week high. Some reports also have Nestlé eyeing an offer.
The Kraft offer that was rejected in late August and which it repeated earlier this month was 12 percent below Cadbury’s price yesterday.
Cadbury has said Kraft’s $16 billion bid significantly undervalues it.
Speculation among consumer bankers is that Cadbury would be glad to sell for what it considers a fairer price. But to push the price higher, Cadbury’s management needs to convince shareholders that there are other alternatives.
This merger battle will likely play out for weeks.
Kraft does not need to post its merger documents until Dec. 7. Under British Takeover Law it will then have 46 days to raise its $16 billion offer.
By that time, it should become clear whether Hershey, which is considering partnering with Italian chocolate maker Ferrero, is really in the running.
If it does not, Cadbury’s share price will likely start sliding, as it had until news broke last week that Hershey was preparing a counteroffer.
Cadbury is the No. 2 chocolate maker in the world, with Kraft at No. 5. Combining the two would vault Cadbury into a virtual tie with Mars, which bought Wrigley in 2008.
In much of western Europe, the world’s biggest chocolate market, there should not be antitrust issues.
Kraft, which owns brands Milka and Toblerone, ranks No. 4 in the region with an 11 percent market share. Cadbury is next, with 9 percent, according to market intelligence firm Euromonitor International.
There could be antitrust issues in the UK, however, since Cadbury has a dominant 31-percent market share, and Kraft five percent.
The American chocolate market is much smaller and antitrust is not an issue.
Cadbury, which does not have much debt, should easily be able to borrow to buy Kraft’s confectionery business, the consumer banker said.
A Cadbury spokesman declined to comment.