By Justin Baer in New York
Published: January 6 2010 02:00 | Last updated: January 6 2010 02:00
Warren Buffett yesterday said he would oppose Kraft’s plan to issue as many as 370m shares to fund its hostile takeover of Cadbury, a stern message from the US food company’s largest investor just as it readies its final assault on the UK chocolatier.
Berkshire Hathaway, the holding company that controls Mr Buffett’s investments, owns about 9.4 per cent of Kraft. Mr Buffett declined to comment.
Alice Schroeder, a former stock analyst and author of The Snowball: Warren Buffett and the Business of Life , said the billionaire investor’s statement may have been an effort to remind Kraft to take a disciplined approach to its final bid before the transaction’s costs overrun its benefits.
“He’s using his position here to send a message to everyone,” Ms Schroeder said. “He’s obviously frustrated that Kraft hasn’t listened to his private suggestions. And it’s a message partly to Cadbury. For them to call Kraft’s bid derisory, when there are no other offers, is incredible.”
In a statement, Berkshire said it voted against the share proposal, calling the plan a “blank cheque” that gives Kraft the right to revise the terms of its bid again before the final offer is due on January 19.
“We worry very much that … there will be an additional change from the revision announced this morning,” Berkshire said.
“To state the matter simply, a shareholder voting ‘yes’ today is authorising a huge transaction without knowing its cost or the means of payment.”
Two other rivals, Hershey and Italy’s Ferrero, have said they are weighing making a bid for Cadbury.
Berkshire said it would consider changing its vote to “yes” once Kraft announces the terms of its final offer.
But the investment company noted that Kraft spent $3.6bn in 2007 to buy back stock at $33 each, “presumably because the directors and management thought the shares would be worth more. Does the board now believe those purchases were a mistake and that Kraft’s true value is only the current price of $27?” Berkshire said.
Kraft shares rose about 3.1 per cent to $28.29 in late morning trading in New York. Cadbury’s American depositary receipts slumped 3.5 per cent to $49.86.
“We agree that Kraft Foods shares are deeply undervalued and we would certainly not do anything that hurts shareholder value,” Kraft said. “As we have stated before, we intend to remain disciplined in this process.”
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