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CNBC VIDEO: Bill Ackman: How Warren Buffett Convinced Me to Buy Kraft

Written by

Darren Rickard

in

Published: Wednesday, 20 Jan 2010 | 10:59 AM ET

By: JeeYeon Park
CNBC News Associate

Kraft did an “excellent job” and paid a fair price in regards to the Cadbury deal, said William Ackman, managing partner at Pershing Square Capital Management.

“As a result of the Cadbury [CBY 54.30 -0.79 (-1.43%) ] deal, because of fear that the company would overpay, because of the arbitragers shorting the stock, the stock we thought was quite cheap,” Ackman told CNBC.

Ackman said billionaire investor Warren Buffett — whose Berkshire Hathaway is Kraft’s largest shareholder — was the catalyst for Pershing Square’s decision to buy Kraft [KFT 28.67 -0.74 (-2.52%) ] shares.

“[Buffett] said Kraft shouldn’t issue too many shares—that was the big risk,” he said. “Once he said that, we thought the likelihood of that happening was very small and we started building our stake in the company.”

“You’re buying Kraft at less than 15 times earnings at over 4 percent dividend yield and they’re buying one of the greatest businesses of all times.”

Ackman’s firm Pershing Square has a 2 percent stake in Kraft as of last week and plans to purchase more shares.

“These are very high margin businesses,” he said. “What Kraft gets is an improved global distribution…If you look at the Kraft brand, it’s an incredible collection of the best brands.”

“The other opportunity is, we have two businesses, both are underearning, they’re both not achieving what they should be in terms of margins…and I think the combined business has synergy as well.”

In the last few months, Ackman said his firm bought shares of Nestle, ADP [ADP 41.81 -1.10 (-2.56%) ], McDonald’s [MCD 63.00 -0.48 (-0.76%) ].

Kraft-ing a Sweet Deal, Pt. 2

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