Bestfoods Down Slightly, Despite Reports of Higher Unilever Bid

Shares of Bestfoods (BFO Quote) were down slightly Friday, despite reports that the British-Dutch food company Unilever(UN Quote) had raised its bid for the Englewood Cliffs, N.J.-based food producer.

Bestfoods stock was off 1 3/16, or 2%, to 64 5/8 in midday trading. (Bestfoods closed down 3/4, or 1%, at 65 1/8.) Conventional wisdom would have predicted a surge in the stock price, as typically happens when companies are takeover targets.

Unilever quickly raised its offer for Bestfoods to more than $70 a share in cash, or nearly $20 billion, from $66 a share, The Wall Street Journal reported, citing unidentified people familiar with the matter.

But weighing on Bestfoods' stock were reports that Bestfoods has been simultaneously contemplating buying Campbell Soup.

"I don't think investors have quite figured out whether Bestfoods' discussions with Campbell's is posturing or a real option for Bestfoods," said Mitch Pinheiro, an analyst at Janney Montgomery Scott who follows BestFoods. "The stock isn't going to get bid up because of a potential merger. We think it's posturing."

Pinheiro said that a Bestfoods-Campbell merger would not justify a stock price of $70 a share. Pinheiro speculated that the discussions with Campbell are simply a tactic by management to attract a higher buyout bid from Unilever, which has long had its eyes on Bestfoods.

Bestfoods had no comment, and Unilever did not return calls.

Meanwhile, a Unilever spokesman told Reuters that formal discussions have not taken place, but that he wouldn't rule out "conversations."

"It's interesting that [Bestfoods] is not even discussing it with Unilever," said Pinheiro, who added that $70 per share is attractive for shareholders. "Bestfoods at 70 would be my two to three year price target." Pinheiro downgraded Bestfoods to a hold on May 3 after its share price hit 64. Above that price, he said, investors are playing a takeover game rather than buying on fundamentals. Pinheiro's firm has not been an underwriter for Bestfoods.

Many analysts expect Bestfoods to eventually succumb to Unilver's overtures, probably at a price in the low 70s. Still, the stock isn't likely to rally since any deal would take several months to complete, said John McMillin, an analyst at Prudential Securities who has an accumulate rating for Bestfoods and whose firm has not performed underwriting.

"The market is saying, 'tell me something I don't already know'," McMillin said.

In early May, Bestfoods turned down a bid of $66-per-share bid from Unilever.