By Adam Jones in London, Haig Simonian in Zurich and Alan Rappeport in New York
Published: January 5 2010 08:21 | Last updated: January 5 2010 15:51
Kraft Foods has suffered an unexpected setback in its pursuit of Cadbury after encountering opposition from Berkshire Hathaway, Warren Buffett’s investment vehicle.
Berkshire, which has a 9.4 per cent stake in Kraft, announced on Tuesday that it had voted “no” to a proposal to authorise the issue of up to 370m Kraft shares to fund its £10.7bn hostile bid for the UK-headquartered confectioner.
In an unusually-public expression of misgiving, Berkshire claimed that the measure would give the US-based food multinational a blank cheque to change its offer “in any way it wishes”.
“To state the matter simply, a shareholder voting ‘yes’ today is authorising a huge transaction without knowing its cost or the means of payment,” it said in a statement.
But even though Berkshire described Kraft stock as an expensive form of bid currency, it held out the possibility of withdrawing its opposition if it gauged that the final offer did not destroy shareholder value.
Berkshire’s intervention came just hours after Kraft announced that it had increased the cash element of its bid for Cadbury after agreeing to sell its North American frozen pizza business to Nestlé for $3.7bn.
At the same time, Nestlé declared that it would not make or participate in a rival offer for the British multinational, removing one potential source of competition to the Kraft bid, whose overall value remained unchanged.
Kraft, the maker of Oreo cookies, Philadelphia cream cheese and Milka chocolate, had originally offered 300p plus 0.2589 Kraft shares for each Cadbury share.
Using the proceeds of the frozen pizza business sale, Kraft said it would offer Cadbury shareholders the option of receiving an extra 60p per share in cash instead of some of the Kraft shares.
Kraft argued the move to increase the cash element of its offer was in response to requests from Cadbury investors.
It also said that it reflected pressure from Kraft shareholders to “be more sparing” with its own stock – a statement that gained added resonance with Berkshire’s subsequent intervention.
Cadbury’s response to the Kraft move was dismissive. “Kraft has once again missed the point. Despite this tinkering, the Kraft offer remains unchanged and derisory with less than half the consideration in cash,” it said.
Shares in Cadbury were trading 3.5 per cent lower at 776½p in late afternoon trading, still well above the 756p offer price. Kraft shares were trading 3 per cent higher at $28.25 in early US trading.
Full details of the revised offer from Kraft have not yet been announced but will be published on or before January 19, the last date upon which Kraft can amend the terms of its bid, assuming another party does not trump its offer.
Hershey, the US chocolate maker, and Ferrero International of Italy have both said that they were considering whether or not to enter the bidding for Cadbury.
Nestlé had until Tuesday declined to comment on its intentions, but analysts had speculated that the Swiss multinational could have participated in some form of counterbid for Cadbury – possibly in conjunction with Hershey.
Such speculation was aided by Monday’s announcement by Nestlé that it would receive more than $28bn for the second tranche of its shares in Alcon, the US eyecare company being sold to Novartis, the Swiss pharmaceuticals group.
However, its statement on Tuesday said: “After discussions with the UK Takeover Panel regarding the potential for further speculation… Nestlé confirms that it does not intend to make, or participate in, a formal offer for Cadbury.”
Martin Deboo, an analyst at Investec Securities, said this removed the possibility of Nestlé aiding Hershey in a bid for Cadbury. “Their [Hershey’s] most obvious friend has left the playing field,” said Mr Deboo.
However, he added that the extra cash element did not “fundamentally change the smell of Kraft’s offer”.
Nestlé said that buying Kraft’s North American frozen pizza business would significantly boost its strategy of growing in premium convenience foods.
Additional reporting by Jenny Wiggins
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