The $16bn auction for Nabisco entered its final stage yesterday, with at least two strong bidding groups after Danone, the French food group, finalised its plans for a joint offer with Cadbury Schweppes.
Second-round bids for the maker of Oreo cookies and Ritz crackers were due in yesterday. Some US analysts had feared that Philip Morris, the US tobacco group which owns Kraft Foods, would face little competition for Nabisco, as rival consortium bids were thought to face substantial tax hurdles and other complexities.
However, it is understood that Danone and Cadbury have agreed on a structure for a joint bid, which they hope will avoid the tax obstacles associated with splitting the company in two.
Danone is said to have waited until the last minute to formalise the bidding partnership, amid speculation that it could instead have linked with other groups such as Nestlé or Heinz, which are also interested in parts of Nabisco.
Most analysts still favour Philip Morris, citing the strength of its balance sheet, and its ability to structure a simple, all-cash bid.
Although Danone is understood to be nervous about over-paying, and Nestlé's long-term interest in Nabisco is thought to be limited to its LifeSavers candy business and Milk Bones pet snacks, both are now seen as credible rivals.
Nabisco's stock has continued to drift higher in recent days, amid speculation that the final sale price could exceed $60 per share, or $16bn. Analysts warned on Tuesday that they expected the price to be closer to $58, or about $15.5bn.
This round of the auction is being closely watched by RJ Reynolds Tobacco, Nabisco's former sister company, and financier Carl Icahn. Both are preparing offers for Nabisco Group Holdings, the shell company that owns 80.5 percent of Nabisco and may retain some of the tobacco litigation risk associated with the former RJR Nabisco.
The price of the Nabisco food sale will determine the price bidders are willing to offer for NGH. Martin Feldman of Salomon Smith Barney said a $58 sale price would suggest that NGH should fetch about $30. It will also affect the scale of compensation payments to Nabisco's senior executives. Last week, Morgan Stanley analysts estimated that, should Nabisco be sold for $55, Jim Kilts, its chief executive, would receive $8.3m in share option profits, as well as a severance package of more than $4m.
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