US raiders keep their sights trained on leading British brands

Despite some conflicts of interest, takeover frenzy is set to continue, writes Fiona Walsh

First Sainsbury's, then Alliance Boots and now Cadbury Schweppes: one by one, some of the best-known names in Britain are being targeted by American raiders.

After the surprise £9.7 billion (€14 billion) approach for Alliance Boots last Friday, it was the turn of Cadbury Schweppes, the world's largest confectionery group, to come under the takeover spotlight yesterday.

Shares in Cadbury's surged 10 per cent to 600p at one stage, valuing the Dairy Milk to soft drinks group at over £12 billion, as veteran US financier Nelson Peltz emerged as a near 3 per cent shareholder.

The billionaire is not necessarily regarded as a bidder for the group, but he has a long history of taking stakes in underperforming companies and pressurising their boards to make changes. He is known to be particularly keen that companies focus their resources on marketing their products.

Last year, he waged a bitter and ultimately successful campaign to win seats on the board of Heinz, where he is forcing through a cost-cutting and share buyback programme.

He also recently emerged as the largest single shareholder in Tiffany's, although he was unsuccessful in a recent bid for the luxury car marque, Aston Martin, which was finally sold off by Ford on Monday.

Although Mr Peltz was giving few clues of his intentions towards Cadbury yesterday, his emergence on the shareholder register adds to the takeover frenzy surrounding some of Britain's biggest and best-known companies.

Even as the Kohlberg Kravis Roberts (KKR) consortium ponders a possible £12 billion bid for Sainsbury's, Britain's third- largest supermarket chain, it also emerged last Friday as the backer of a shock £9.7 billion bid approach for Alliance Boots from its deputy chairman Stefano Pessina.

The £10 a share offer was swiftly rejected on Monday by Alliance Boots chairman Sir Nigel Rudd, although the smart money in the Square Mile is on a sweetener from KKR and Stefano to win the board round. Most analysts believe that something above £10.50 would do the trick.

Sir Nigel, a takeover veteran himself, is particularly keen to be seen to be acting in the best interests of shareholders in the drugs wholesaling to health and beauty retailing group.

That will not be an easy task, as the Alliance Boots bid brings a whole new meaning to the phrase conflict of interest.

Mr Pessina, the Italian billionaire behind the audacious move, is executive deputy chairman of the company and also its largest single shareholder. He was the architect of the deal that brought his Alliance UniChem group together with Nottingham-based Boots less than nine months ago, and a majority of the executive directors on the Alliance Boots board used to work for him at Alliance UniChem.

These include his girlfriend of almost 25 years, Ornella Barra, a trained pharmacist who is wholesale and commercial affairs director of the group.

Among the six non-executive directors, three are former Alliance UniChem men, which means that, in total, seven of the 13 board members are in the Pessina camp.

It goes on: Alliance Boots' investment bank advisers, Goldman Sachs, are acting for Mr Pessina's private equity backers in their bid for fellow retailer J Sainsbury. Even the company's financial public relations advisers act for KKR.

Also in a difficult position is the Alliance Boots chief executive, former Asda man Richard Baker. He had been widely expected to quit, clutching a large cheque, when the merger went through last year, particularly as the Alliance UniChem camp had effectively taken control of the board. However he appears to have forged a close working relationship with Mr Pessina - the two apparently exchanged gifts of cufflinks and a tie last Christmas - and Mr Pessina has made it clear he wishes to retain Mr Baker's services after the buyout.

Against this background, it falls to Sir Nigel to act as independent arbiter of the offer. He rightly excluded Mr Pessina and Ms Barra from the board meeting on Monday, at which the £10 a share terms were rejected as too low.

With his swift rejection of the private equity-backed bid, Sir Nigel signalled to the City that this is not a done deal, despite Mr Pessina's powerful position as owner of just over 15 per cent of the shares. Even if improved terms eventually win over the board, there will always be a suspicion that the deal is a stitch-up. If the bid does ultimately fail, it would surely make it impossible for Mr Stefano and Ms Barra to stay on at the company.

The Alliance Boots bid gives an indication of the awesome scale of KKR's ambitions.

As well as possibly the move on Sainsbury's, KKR was part of the consortium of private equity players which launched an agreed $45 billion bid for US utility company TXU just a few weeks ago, in what will be the world's biggest-ever buyout deal.

Even as the Alliance Boots board were rejecting the £10 a share offer on Monday, across the Atlantic KKR was announcing a $7.3 billion takeover of the US discount retailer Dollar General.

At some point, the funds may run out or the expertise become over-stretched. At the moment, however, there seems little sign of that.

Fiona Walsh writes for theGuardian newspaper in London