Warren Buffett takes on Kraft

The billionaire investor comes out swinging against Kraft's proposal to issue shares to pay for Cadbury.

By Kim Peterson Jan 5, 2010 2:05PM
Warren Buffett. Credit: (© Paul White/AP)Warren Buffett is a little irritated with Kraft (KFT).

In a rare public smackdown, Buffett came down hard Tuesday against Kraft's latest move to buy chocolate maker Cadbury.

Kraft is mounting a hostile $17 billion bid for Cadbury, and wants to issue up to 370 million shares to help pay for the deal. That could raise around $10 billion.
But shareholders must approve that move, and Buffett's Berkshire Hathaway is Kraft's biggest shareholder. Berkshire said it voted against the proposal.

But sometimes, a "no" vote just isn't enough. Sometimes you need to go guns a'blazin' with an "oh, snap!" public statement. And that's what Buffett did.

The share issuance "will give Kraft a blank check allowing it to change its offer to Cadbury -- in any way it wishes," Berkshire said in a statement. Those are Berkshire's italics, not mine.

"To state the matter simply, a shareholder voting 'yes' today is authorizing a huge transaction without knowing its cost or the means of payment," Berkshire added.

At $27 a piece, Kraft shares are undervalued and should not be used to fund a major acquisition, Berkshire said. Berkshire cautioned all Kraft shareholders to consider one point: The value of what is being given in a deal is just as important as the value of what is being received.

"At this time, however, we believe no shareholder should vote 'yes' when he can't possibly know what he is voting for," the statement said.

But Buffett did throw in an olive branch. Kraft has until Jan. 19 to come up with a final bid for Cadbury. Berkshire said it would change its vote to "yes" if Kraft figures out an offer that doesn't destroy value for its shareholders.

The Wall Street Journal calls Berkshire's statement "a red-faced, four-alarm flag" for Kraft and its chief executive. And really, it's just one more piece of drama in a hostile bid that emphasizes the "hostile."

Cadbury has fought the acquisition tooth and nail, calling the offer "wholly inadequate" and a "blatant and opportunistic attempt to acquire the right business at the wrong price."

So what's Kraft to do now? One thing's for sure: Chief executive Irene Rosenfeld had better get Buffett on the phone and keep him there. Buffett can single-handedly torpedo this whole thing.

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