January 21, 2010 1:54am
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Back to Irene Rosenfeld, who despite her degree in psychology, appears to have upset an awful lot of people with Kraft’s £11.6bn takeover of Cadbury.
Having made herself unpopular in the UK by acquiring the maker of Cadbury’s Dairy Milk and the Curly Wurly, she has alienated Warren Buffett, her biggest shareholder, who regards it as “a bad deal”.
When pressed in a CNBC interview about his views on her, he damned her with faint praise:
“I think Irene has done a good job in operations. I like Irene. I mean, she’s been straightforward with me. We just disagree. She thinks it’s a good deal. I think it’s a bad deal. I think she’s a decent person. She could be a trustee under my will. I just don’t want her making this particular deal.”
Ms Rosenfeld has put herself far out on a limb – Mr Buffett’s objections extend not only to the price she paid but her sale of “a very fine pizza business” to Nestle to raise money.
His calculation of the lack of value for Kraft in the deal is worth reading in full because it gives a good idea of how a true value investor thinks.
“Now they mentioned paying 13 times Ebitda for Cadbury, but they’re paying more than that. For one thing, Ebitda is not the same as earnings. Depreciation is a very real expense. But on top of that, they’ve got a billion-three they’re going to spend of various rearrangements of Cadbury. They’ve got 390 million dollars of deal expenses. They are using their own stock, 260 million shares or something like that, that their own directors say is significantly undervalued. And when they calculate that 13, they’re calculating Kraft at market price, not at what their own directors think the stock is worth. So, the actual multiple, if you look at the value of the Kraft stock, is more like 16 or 17 and they sold earnings at nine times. So, it’s hard to get rich doing that. And I’ve got a lot of doubts about the deal.”
Ouch.
As Mr Buffett says, he is not getting a chance to vote on the deal as a Kraft shareholder, but I cannot think this is the last Ms Rosenfeld will hear of it.
Determination is a good quality, but ignoring the world’s most venerable shareholder is not what I would call wise career tactics.
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