Kraft Foods took a big step on Tuesday to shore up its $16 billion hostile bid for Cadbury, the British confectioner, by selling one of its most profitable units to Nestlé.
But Kraft’s largest shareholder, Berkshire Hathaway, urged the company to be cautious.
By selling its North American pizza unit to Nestlé for $3.7 billion in cash, Kraft raised money to increase the cash portion of its Cadbury offer, though it did not raise its overall price. Kraft also took out a potential rival in Nestlé, which said it had no plans to pursue an offer.
Analysts and investors have wondered for weeks whether Nestlé was preparing to make a bid, speculation that grew on Monday after Nestlé, based in Switzerland, said it would sell its remaining stake in the eye care company Alcon for $28.1 billion. Instead, it chose to bolster its presence in the North American frozen-pizza business, acquiring brands like DiGiorno and Tombstone in the United States, Delissio in Canada and the California Pizza Kitchen trademark.
Yet an unexpected wrinkle also arose when Berkshire, the conglomerate controlled by Warren E. Buffett, said in a statement that it opposed Kraft’s plan to issue up to 370 million new shares to support its Cadbury offer. Berkshire, which holds a 9.4 percent stake in Kraft, said it was worried that the company might spend too much and dilute its shareholders. It pointed to Kraft’s $3.6 billion stock buyback — at $33 a share — as proof that issuing too much new stock at today’s prices would be wasteful.
“The share-issuance proposal, if enacted, will give Kraft a blank check allowing it to change its offer to Cadbury — in any way it wishes — from the transaction presented to shareholders in the proxy statement,” Berkshire said. The company added that it would change its mind if Kraft’s final bid, due Jan. 19, did not harm its investors. Kraft shareholders will vote on the new shares proposal on Feb. 1.
While Cadbury has said that it would prefer independence than absorption into a low-growth food conglomerate, the company has also said that it would consider bids that were high enough. Analysts estimated £8, or $12.80, a share as a starting point.
Cadbury’s chairman, Roger Carr, derided Kraft’s offer, saying its talk of discipline was “simply a smokescreen to justify an attempt to steal from the Cadbury shareholders.”
But Kraft is under pressure from investors not to dilute their holdings too greatly, limiting the amount of stock it can issue. Mr. Buffett said last year that he believed Kraft’s original offer was a “pretty full” price. At the same time, Kraft has vowed to maintain an investment-grade rating.
By selling its North American pizza business, Kraft plans to offer an additional 60 pence a share in cash to Cadbury shareholders. Kraft had begun talks with Nestlé over the pizza business before it bid for Cadbury, according to a person briefed on the matter.
Jon Cox, a food and beverage analyst at Kepler Capital Markets based in Zurich, said he did not believe Berkshire’s opposition would sink the deal.
“It has a negative impact, but I still think the shareholders will approve the deal,” he said, adding that Kraft would be buying Cadbury relatively cheaply, compared with similar recent deals.
With Nestlé bowing out, Kraft’s remaining potential rivals are Hershey and Ferrero, the Italian chocolate maker, neither of which has yet presented a competing proposal.
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