Buffett reins in Kraft
BLOOMBERG
New York, 6 January
arren Buffett, the bil-
W lionaire investor who
helped scuttle Coca-
Cola Co’s bid for Quaker Oats
10 years ago, is restraining
Kraft Foods Inc in its quest to
acquire Cadbury Plc.
Buffett’s Berkshire Hath-
away Inc, Kraft’s biggest
shareholder, urged fellow in-
vestors to oppose a plan to is-
sue as many as 370 million
shares to help buy the UK-
based candy maker. Kraft
Chief Executive Officer Irene
Rosenfeld is seeking a “blank
check” for the deal, Berkshire
said yesterday.
“I think Buffett’s got it
nailed,” said Donald Yackt-
man, founder of Yacktman
Asset Management Co, which
holds Kraft shares. “Kraft
is hemmed in — there’s only
so much they’re going to be
able to do to make this ac-
quisition.”
Buffett, who has said
shareholders must act like
owners, urged caution in ne-
gotiations after Cadbury re-
jected Kraft’s bid of £10.6
billion ($17 billion). In pub-
licly asking others to join
him, the 79-year-old Berk-
shire chairman is drawing
on his power as a 9.4 per cent
owner of Kraft and his stand-
ing in financial markets as
the world’s preeminent in-
vestor.
Berkshire said it may sup-
port a Cadbury takeover if
it concludes this month that
the final offer “does not de-
stroy value for Kraft share-
holders.” Buffett’s assistant,
Carrie Kizer, said the com-
pany had no comment.
Billionaire Warren Buffett is drawing on his power as a
9.4 per cent owner of Kraft
“If he says no, everybody
else is going to pile on and say
no too,” said Justin Fuller, a
partner at Midway Capital Re-
search & Management who
runs the buffettologist.com
Web site.
Buffett was the most vo-
cal dissenter on Coca-Cola’s
board when directors met in
2000 to discuss a $15.3 bil-
lion bid for Quaker Oats, the
maker of Gatorade, Cap’n
Crunch cereal and Rice-A-
Roni. Buffett argued the price
was too high because a stock
swap proposed as part of the
deal would give up more than
10 per cent of Atlanta-based
Coca-Cola, board member
James Williams said in an in-
terview about three years
later.
The board voted against
the acquisition, and Pepsi-
Co Inc. bought Quaker Oats
in August 2001 for $14 billion.
Berkshire remains the largest
shareholder in Coca-Cola.
Buffett’s company also holds
the biggest stakes in Ameri-
can Express Co. and Wells
Fargo & Co.
“It’s unusual for Berkshire
to put out any sort of com-
ment like this publicly,” said
Glenn Tongue, a partner at
T2 Partners LLC, which holds
investments in Omaha, Ne-
braska-based Berkshire and
Kraft. Buffett’s opposition to
a stock sale may prevent Kraft
from overbidding, he said. “As
a shareholder, I love seeing
this,” he said.
Buffett won a global fol-
lowing as the “Oracle of Om-
aha” by profiting from in-
vestments in out-of-favor
companies and firms he be-
lieves have unassailable ad-
vantages, including See’s
Candies and ice-cream mak-
er Dairy Queen. He agreed
to buy $6.5 billion in debt and
preferred shares in Wm.
Wrigley Jr. Co to help Mars
Inc. acquire the chewing-gum
maker in 2008. Last year,
Berkshire bought stock in
Kraft rival Nestle SA.
“I’m not surprised that
Berkshire would resist issu-
ing shares,” said Tom Russo,
partner at Gardner Russo &
Gardner, which holds Berk-
shire, Cadbury and Vevey,
Switzerland-based Nestle.
Buffett “has had the long-
standing belief that equity
capital is very scarce.”
Rosenfeld, CEO at North-
field, Illinois-based Kraft
since 2006, is seeking to buy
Cadbury, the maker of
Creme Eggs and Trident
gum, to expand outside the
US Kraft raised the cash por-
tion of its bid yesterday af-
ter agreeing to sell pizza
brands including DiGiorno
and Tombstone to Nestle,
the world’s largest food
company.
Cadbury fell 3.2 per cent
to 779 pence yesterday in Lon-
don, the biggest drop in eight
months. Kraft added $1.34,
or 4.9 per cent, to $28.77 in
New York trading. That val-
ues Berkshire’s stake at more
than $3.9 billion.
Buffett said in the state-
ment that Kraft shares were
“very expensive ‘currency’”
after falling about 17 per cent
in the two years ended last
week, and he criticized man-
agement for seeking to issue
stock at current prices af-
ter repurchasing shares at
$33 in 2007. Kraft executives
“have to do a lot of things
right to justify this price,”
Buffett said in September on
CNBC.
“We agree that Kraft Foods
shares are deeply underval-
ued,” the foodmaker said in
a statement. “We intend to re-
main disciplined in this
process.”