Author: Darren Rickard

By Andrew Cleary

Jan. 17 (Bloomberg) — Kraft Foods Inc. must raise its hostile 11 billion-pound ($17.9 billion) bid for Cadbury Plc by at least 10 percent to stand a chance of capturing the U.K. maker of Dairy Milk chocolate, an investor survey shows.

Kraft, whose offer is worth about 771 pence a share, needs to raise that to at least 850 pence, the median price named by 9 Cadbury shareholders, who together account for about 11 percent of the shares. Responses ranged from 800 pence to 900 pence. A deadline to increase the bid passes on Jan. 19.

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Cadbury closed at 793.5 pence on Jan. 15, 2.9 percent above the value of Kraft’s bid, reflecting the chance the offer will be raised or a rival suitor such as Hershey Co. will emerge. Hershey is stepping up efforts to prepare a bid and plans to make a decision after Kraft’s final offer, according to people with knowledge of the matter. Kraft Chief Executive Officer Irene Rosenfeld has vowed to stay “disciplined” on price.

“There’s a lot of value in Cadbury,” said Peter Langerman, CEO of Mutual Series, which is a subsidiary of Franklin Resources Inc., which has a 7.7 percent stake in Cadbury. “When you look at the numbers that make sense for both Cadbury and Kraft, their offer is materially lower than that,” he said Jan. 15 in a telephone interview.

Franklin Resources will reject the bid if it isn’t improved, Langerman said. The U.K. company’s second-largest investor, Legal & General Group Plc, said it remains opposed to Kraft’s offer on valuation grounds.

Kraft spokesman Michael Mitchell declined to comment.

Rival Offer?

“Our position on Cadbury is unchanged; we continue to believe that the current Kraft bid does not reflect the long- term value offered by the company on a standalone basis,” Mark Burgess, head of equities at Legal & General, said in a statement. The insurer owned about 70 million Cadbury shares, a 5.1 percent stake, according to a Jan. 13 filing.

Kraft will tomorrow raise its bid for Cadbury to at least 820 pence per share, the London-based Sunday Times said, without saying where it got the information. Kraft will boost the cash component of its offer to woo investors who do not want Kraft shares, the newspaper said.

Warren Buffett’s Berkshire Hathaway Inc., the top stockholder in Kraft, voted against the foodmaker’s proposal to issue as many as 370 million shares for the Cadbury purchase, it said Jan. 5. Berkshire said the share-issuance proposal amounted to a “blank check.” Billionaire investor William Ackman bought a $950 million stake in Kraft and urged the company to limit the amount of stock in the offer.

Loan Package

Rival bidders have until Jan. 23 to decide whether to make a counter-proposal. Cadbury Chief Executive Officer Todd Stitzer said last week that Hershey and Cadbury could make an “appealing” combination. Hershey has been drafting commitment letters with its lenders, JPMorgan Chase & Co. and Bank of America Corp., to secure a multi-billion-dollar loan package, according to people with knowledge of the matter.

“If Kraft walk away, it’s not the end of the world,” said Andy Brown, chief executive officer of Cedar Rock Capital Ltd. in London. “Just because they are the only corporation to have made an offer, it doesn’t mean they’re going to win or that’s what the company is worth.”

Morgan Stanley Investment Management Inc.’s Ann Thivierge said she “won’t be disappointed” if Kraft’s bid is rejected or the Toblerone maker walks away. Mario Gabelli, the chairman and chief executive officer of Gamco Investors Inc., also said his investment in Cadbury doesn’t hinge on a merger.

Competitive Auction

“We don’t mind owning Cadbury for the next five years,” said Gabelli, whose mutual-fund firm owned almost 2.8 million American depository shares in Cadbury as of June 30.

To be sure, some investors say the lack of a competitive auction means they’re prepared to sell for less than they originally anticipated.

“Anything with an 8 handle is tempting now,” David Crawford, a fund manager at Octopus Investment Ltd. in London, said in an interview. “With the bid where it is, they don’t have to add much of a premium to get there.” Octopus owns 650,000 Cadbury shares.

Crawford said he bought his holding after Kraft’s approach for a “short-term gain.” Cadbury shares closed at 568 pence Sept. 4, the last trading day before Kraft announced its proposal.

Earnings Multiples

Jeffrey Scharf, president of Santa Cruz, California-based Scharf Investments, said 900 pence-a-share would be “compelling,” while an offer in the “low 800s” may struggle. Scharf Investments has about 760,000 Cadbury shares.

In a document sent to shareholders on Jan. 12, Cadbury said comparable deals in the confectionery industry have taken place at multiples between 14.3 and 18.5 times earnings before interest, taxes, depreciation and amortization, whereas Kraft’s offer values the company at 12 times 2009 earnings. A bid at 14.3 times Cadbury’s 2009 earnings would come to more than 900 pence a share, according to Bloomberg calculations.

“Kraft have been very smart, and if they win Cadbury they’ll get a bargain,” said Phil Spencer, who helps manage 7.4 million Cadbury shares for private clients at Brewin Dolphin Ltd., which has 20 billion pounds under management. “Even if they come back with 850 pence though, it’ll come down to the wire. Cadbury’s defense has been compelling.”

In response to Kraft’s approach, Cadbury has lifted sales and profitability goals, outlined plans for improving cashflow, and highlighted the benefits of its presence in faster-growing emerging markets from India to Brazil.

“Cadbury’s management haven’t put a foot wrong, they’ve been pugnacious and I can’t fault their defense,” said John Haynes, who helps manage 12 billion pounds including 5 million Cadbury shares at Rensburg Sheppards Plc in London. “I would still have problems selling at 850 pence, I don’t think that’s nearly enough for this unique asset. I am absolutely happy to remain a holder for three years.”

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Posted on 01/17/10 at 8:11am by Lisa Bloom

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Posco(NYSE:PKX), Asia’s most profitable steelmaker and Korea’s leading steelmaker, is planning its largest annual investment ever in a move to capitalize on chances offered by the end of the economic crisis.

The company will invest $8.3 billion (9.3 trillion won) this year, including 3 trillion won that could be used in aggressive mergers and acquisitions.

“We will continue our cost cutting in preparing for an extended recession while at the same time pursuing aggressive management to seize opportunities in the post-crisis period,” said Posco Chairman Chung Joon-yang.

Chung told reporters that POSCO is more interested in buying Daewoo International than in other local firms like Daewoo Engineering & Construction because it wants to create synergy in overseas resources development and materials business.

Daewoo Shipbuilding shares increased 13.69 percent, Daewoo International shares were up 1.77 percent and Daewoo Engineering rose 2.37 percent, following the announcement by POSCO.

Meanwhile, Posco posted the highest net income in six quarters and said capital expenditure will soar to a record this year as demand rebounds with the global economic recovery.

Net income advanced to 1.28 trillion won ($1.1 billion) in the three months ended Dec. 31, from 721.4 billion won a year earlier, according to calculations derived from full-year results released. Spending for 2010 will reach 9.3 trillion won, and sales will surge 9.3 percent, it said.

The global steel market has bottomed and will grow by 9.2 percent in 2010 as demand rebounds in the U.S., Europe and Japan, the World Steel Association said Oct 12. Posco is planning $30 billion of overseas expansion in India, Indonesia and Vietnam to regain its spot as Asia’s largest steelmaker.

“Posco was able to recover faster than anybody in the market,” the company said in the statement. “We weathered the crisis by cutting output by only 20 percent in the first half, while global rivals had to cut by more than 40 percent.”

Shares of Posco, which counts Warren Buffett’s Berkshire Hathaway Inc.(NYSE:BRK.A) as a stakeholder, fell 0.7 percent to close at 592,000 won in Seoul trading. They rose 63 percent last year compared with an 89 percent gain in ArcelorMittal(NYSE:MT), the world’s largest steelmaker.

In 2010, POSCO plans to refurbish the No 4 blast furnace in Pohang, complete a steel plate mill in Gwangyang, seek merger and acquisition opportunities in the local market and accelerate procedures to build steel plants in India and Indonesia.

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Published Date: 17 January 2010

KRAFT Foods chief executive Irene Rosenfeld is expected to raise the US company’s $17.1 billion (£10.5bn) bid for Cadbury by its Tuesday deadline although it is likely to fall short of shareholders’ expectations.

Rosenfeld is forecast to sweeten the offer to 820p a share, from a current offer valued at about 771p, considerably below the 850p level that some investors have signalled they want.

Rosenfeld is limited in her ability to raise the bid, particularly after a public warning by top Kraft shareholder and tycoon Warren Buffett against overpaying. But she is loath to risk coming in too low and facing outright rejection from Cadbury holders, or lose a deal to an eleventh-hour bid by potential rival Hershey.

The Wall Street Journal reported Hershey has the financial muscle to top Kraft’s offer and is likely to make a bid this week of at least 800p to 820p, or $17.9bn.

A new bid by Kraft would be the final move in Rosenfeld’s four-month quest for Cadbury, now viewed as a referendum on her tenure at Kraft.

“Her seat is a lot hotter than it used to be, regardless of whether they get Cadbury bought or not,” Edward Jones analyst Matt Arnold said.

A New York hedge fund manager said: “If the final offer is worth 800p, I think there is a 50 per cent chance it gets done. At that level it’s the flip of the coin. Every 10p on top is an extra 5 per cent probability that the deal gets done.”

The investor added that Kraft should include a cushion in its final bid in case its stock falls on concerns over plans to issue up to 370 million shares to fund a deal.

“If the bid is 830p, I want to be sure it is still worth that much on the day I tender,” he said. Investors have until 2 February to respond to the Kraft bid.

If Kraft fails to win Cadbury, Rosenfeld will have spent millions of dollars on advisers. She will need to show the company can boost sales and profits without Cadbury and without a growing pizza business whose recent sale was meant to fund a bid.

DA Davidson analyst Tim Ramey wrote a scathing note to his clients this week suggesting Carlos Gutierrez, a former Kellogg chief executive and US secretary of commerce, might run Kraft instead.

“Given the high-profile rebuke by No 1 shareholder Warren Buffett last week, we wonder how the board feels about the leadership of Irene Rosenfeld,” Ramey said.

Rosenfeld went to London last week to listen to Cadbury investors, believed to have included Standard Life and Scottish Widows Investment Partnership, and gauge their sentiment on the bid.

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Burlington Northern Santa Fe Corporation (BNSF) (NYSE: BNI) will issue its fourth-quarter 2009 earnings at approximately 4 p.m. Eastern Time on Jan. 21, 2010. BNSF will not be hosting a fourth quarter earnings conference call.

Burlington Northern Santa Fe Corporation’s subsidiary BNSF Railway Company operates one of the largest North American rail networks, with about 32,000 route miles in 28 states and two Canadian provinces. BNSF Railway Company is among the world’s top transporters of intermodal traffic, moves more grain than any other American railroad, carries the components of many of the products we depend on daily, and hauls enough low-sulfur coal to generate about ten percent of the electricity produced in the United States. BNSF Railway Company is an industry leader in Web-enabling a variety of customer transactions at www.bnsf.com.

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January 16, 2010, 12:25 AM EST

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By Christine Richard and Zachary R. Mider

Jan. 16 (Bloomberg) — Billionaire investor William Ackman bought a $950 million stake in Kraft Foods Inc. and urged its Chief Executive Officer Irene Rosenfeld to limit the amount of stock she uses to bid for Cadbury Plc.

Ackman’s Pershing Square Capital Management LP bought at least 32 million shares in Kraft, or 2 percent of the company, and plans to purchase more, Ackman said in an interview yesterday. Pershing’s stake in Kraft is now the firm’s biggest holding.

Pershing thinks “very highly of Irene Rosenfeld and her business plan,” and believes Kraft’s 11 billion-pound ($17.9 billion) stock-and-cash bid for Cadbury makes “tremendous sense,” Ackman said. Kraft risks diminishing the deal’s merits by issuing too much stock to pay for it, he said, echoing a warning by investor Warren Buffett on Jan. 5.

“The more Kraft stock they issue, the less interesting this deal is,” Ackman said. “Fortunately, the seller also prefers cash.” Ackman said Kraft stock is “extremely undervalued.”

The Pershing stake will be disclosed in a filing with U.K. regulators on Jan. 18, Ackman said. Kraft, based in Northfield, Illinois, has until Jan. 19 to modify its offer for Uxbridge, England-based Cadbury, the maker of Dairy Milk chocolate.

Buffett’s Berkshire Hathaway Inc., Kraft’s biggest shareholder, said this month that it voted against a plan to issue millions of shares to finance a Cadbury takeover, saying it amounted to a “blank check” to raise the bid.

Kraft advanced 46 cents to $29.58 in New York Stock Exchange composite trading yesterday. The stock has risen 7.8 percent since Berkshire made its statement.

‘Great Confidence’

Ackman’s investment “is a sign of great confidence in our management and our company’s future prospects,” said Michael Mitchell, a Kraft spokesman, in an e-mailed statement.

Ackman said Hershey Co., the Pennsylvania-based chocolate maker that’s controlled by a charitable trust, won’t submit a rival bid because it would imperil its own financial viability.

“I don’t see how the trustees of a charity can put at risk everything that Milton Hershey built to do a leveraged buyout of Cadbury,” he said. Hershey has been weighing a bid and has until Jan. 23 to make a final decision.

Kirk Saville, a Hershey spokesman, declined to comment.

It’s not the first time Ackman has laid a bet on a Cadbury takeover. In early 2007, he bought Cadbury shares on speculation that Kraft would buy the company, he told investors in a letter last year. He sold the stake in the last half of 2008 after concluding that turmoil in the credit markets made a sale less likely, he said in the letter, adding, “we were wrong.”

Current Offer

Kraft’s current offer for Cadbury, of 300 pence of cash and 0.2589 Kraft shares, consists of 61 percent stock and 39 percent cash, based on the closing value of Kraft’s shares yesterday. Kraft is also offering Cadbury shareholders an option to substitute up to 60 pence of shares with cash.

Kraft may be able to increase the cash portion of its offer without further negotiations with its lenders. In addition to a 5.5 billion-pound ($9 billion) bridge loan it’s getting from Citigroup Inc., Deutsche Bank AG, and seven other banks, it has an agreement to borrow $3 billion (1.84 billion pounds), according to a Dec. 4 filing with the U.S. Securities and Exchange Commission.

Rosenfeld was in London last week meeting with major Cadbury shareholders. The U.K. company’s shares have traded at a premium to her offer, which was first disclosed on Sept. 7, as investors bet she will raise the bid or a rival offer will emerge. Cadbury fell 5.5 pence to 793.5 in London trading yesterday, while Kraft’s offer currently values the stock at 771 pence.

A takeover of Cadbury would give Kraft, the maker of Toblerone chocolate and Tang powdered drinks, a faster-growing business and access to emerging markets. The combined company would have about $50 billion in annual sales.

“There were so many investment banks working on the deal that there hasn’t been good research on what the combination would look like,” Ackman said. “We think that’s among the reasons that Kraft is undervalued.”

Lazard Ltd., Centerview Partners, Citigroup, and Deutsche Bank are advising Kraft, and Goldman Sachs Group Inc., Morgan Stanley, and UBS AG are counseling Cadbury. Seven other banks are part of a group of lenders for Kraft’s bid. JPMorgan Chase & Co. and Bank of America Corp. are in discussions about financing a Hershey bid.

–With assistance from Duane Stanford in Atlanta. Editors: Jennifer Sondag, Elizabeth Wollma

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Hershey edged closer to a bid for Cadbury of Britain on Friday, people briefed on the matter said. The move comes just days before Kraft is set to disclose its final offer for the confectioner.

Hershey, the chocolate maker based in Pennsylvania, has been lining up the billions of dollars in financing needed to challenge Kraft’s cash-and-stock proposal, worth about $17.2 billion based on Friday’s closing share price. The company has been holding talks with Cadbury over what would constitute an acceptable bid.

Hershey has been working with JPMorgan Chase and Bank of America to raise at least $10 billion, these people said. It is also planning to raise additional equity by issuing new shares and attracting outside capital. Its controlling shareholder, a trust that oversees the Milton Hershey School, has been working on fund-raising with Byron D. Trott, the former Goldman Sachs banker and Warren E. Buffett’s longtime adviser.

Cadbury’s chairman, Roger Carr, said on a conference call with investors this week that Hershey had recently reaffirmed its interest in a potential deal.

But it is not clear whether Hershey is seeking to follow through with an actual proposal or just make enough noise to persuade Kraft to pay more for Cadbury. While some within the company and the Hershey Trust have agitated for a deal, its management has been reluctant to stretch Hershey’s finances too thinly.

Hershey, which under British takeover law has until Jan. 23 to make a bid, will not make an offer without some assurance from Cadbury that it would be accepted, these people said. And while Cadbury executives have hinted that they would find a merger with Hershey more acceptable than one with a huge conglomerate like Kraft, they have strongly argued that they would prefer to keep their 186-year-old company independent.

In many ways, Hershey is finding itself in an unusual box. While it would like to acquire Cadbury, creating a candy specialist with a broad international presence, it would like to do so at a price that Cadbury would almost certainly reject. And as speculation has mounted over the last month that Hershey was drawing closer to presenting a formal bid, Cadbury shares have risen as well, making a potential takeover offer even more expensive. Cadbury’s shares closed on Friday at 793.5 pence. Kraft’s current offer is worth about 771 pence.

Hershey is also wary of endangering its investment-grade credit rating, constraining the amount of debt and equity it can raise in support of its bid, these people said. The individuals briefed on the matter spoke on condition that they not be identified because the talks were continuing and confidential. They added that the company held talks with the major credit ratings agencies this week.

Finally, these people said that Hershey could find itself quickly outbid by Kraft, whose management has identified a Cadbury takeover as the ideal tonic for its slow-growing stock. Hershey’s market value of $8.25 billion is dwarfed by Kraft’s $43.7 billion.

Other potential bidders have already fallen away. Nestlé, the Swiss food giant, withdrew from the Cadbury race early this month when it agreed to buy Kraft’s North American frozen pizza business for $3.7 billion. And Ferrero, the Italian maker of Nutella spread, is unlikely to make its own offer, according to people briefed on the matter.

Spokesmen for Hershey and Cadbury declined to comment.

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By JOSH FUNK
January 15, 2010, 8:04PM ET

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Warren Buffett’s Berkshire Hathaway Inc. is getting ready to split the company’s Class B shares next Thursday as part of its plan to buy Burlington Northern Santa Fe Corp.

The 50-for-1 stock split, which shareholders will vote on Wednesday, will boost the liquidity of Berkshire’s stock, and enable Berkshire to offer even small BNSF shareholders Berkshire stock as part of its $26.3 billion cash and stock deal.

The added liquidity Berkshire will have as a result of the split will also increase the chances that the Omaha-based company will join the S&P 500 index. Berkshire’s Class A shares, which are the nation’s most expensive stock, and its Class B shares have been difficult to trade because of their high prices.

Berkshire’s Class A shares, which sold for $97,500 Friday, are not being split.

Class B shares, dubbed “Baby Berkshires,” were first issued in 1996 to meet demand from smaller investors and discourage investment firms from reselling pieces of Berkshire’s original shares — which became the Class A shares.

Buffett declined to discuss the stock split Friday, ahead of Wednesday’s special shareholder meeting in Omaha. Berkshire’s board has said in documents sent to shareholders that it supports the split regardless of the BNSF deal.

Next week’s split will make the $3,247 Class B shares significantly more affordable: They will be worth $64.94 apiece. That will take the B shares from 1/30th the value of a Class A share to 1/1,500th of Berkshire’s Class A shares.

“Now everybody will have access to it,” said Andy Kilpatrick, the stockbroker-author who wrote “Of Permanent Value: The Story of Warren Buffett.”

The fact that the split may lead to inclusion in the S&P 500 is also significant because so many investors rely on it as a barometer for the economy. For years, Buffett has measured Berkshire’s annual performance against the index in his letter to shareholders.

Being included would also generate new investment in Berkshire because trillions of dollars mirror moves in the index, and many funds buy stock in the companies in it.

A Standard & Poor’s committee decides which companies to include in the S&P 500 based on a number of different criteria. Spokesman David Guarino declined to comment on the prospect of Berkshire joining the index, but he did explain the factors S&P considers.

Berkshire’s market capitalization of $151 billion would easily exceed S&P’s requirement that a company be worth at least $3.5 billion in the eyes of the stock market. But in the past, Berkshire has been left out of the index because its shares have been cumbersome to trade. S&P uses a formula comparing the dollar value of stock traded to a company’s market capitalization to evaluate liquidity.

Buffett’s charitable plans are another factor that will increase the number of Class B shares available to trade in the future. Buffett has pledged to convert all his Berkshire holdings to B shares and donate them to charity over time. Buffett pledged in 2006 to gradually give 10 million B shares to the Gates Foundation, 1 million B shares for the Susan Thompson Buffett Foundation named in honor of his deceased first wife, and 350,000 shares for each of the three foundations run by his three children.

Morningstar analyst Bill Bergman said any company that gets added into the S&P 500 always sees a boost in its stock, but he thinks many investors have already factored that into Berkshire’s shares. So becoming part of the S&P 500 may not mean much to Berkshire’s share price.

“It’s an interesting development, but as far as the value of the shares go, it doesn’t mean much,” Bergman said.

The Class B split was a key part of the BNSF deal when it was announced in December. Berkshire agreed to pay $100 per share in cash and stock for the 77.4 percent of BNSF shares that it didn’t already own. The purchase will be the largest ever for Buffett’s company.

Berkshire and BNSF have said they expect the deal to close in the first quarter, and the Ft. Worth, Texas, railroad has scheduled a Feb. 11 shareholder vote on it.

Berkshire expects the majority of the shares issued in the $100-per-share deal will be Class A shares, but holders of smaller amounts of BNSF shares who opt for a share exchange rather than cash will receive Class B shares. Having smaller B shares will enable Berkshire to complete the deal without splitting many shares.

If both Berkshire’s and BNSF’s shareholders approve, Berkshire will become the owner of the nation’s second-largest railroad. BNSF hauls grain, coal and consumer products across 32,000 miles of track in 28 western states and two Canadian provinces.

Berkshire already owns more than 60 subsidiaries, including clothing, furniture, jewelry and corporate jet firms, but its insurance and utility businesses typically account for more than half of the company’s revenue. It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.

——

On the Net:

Berkshire Hathaway Inc.: http://www.berkshirehathaway.com

Burlington Northern Santa Fe Corp.: http://www.bnsf.com

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(UKPA) – 10 minutes ago

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A major shareholder in Dairy Milk maker Cadbury said US food giant Kraft would have to pay more to succeed in its hostile takeover bid.

The warning from Legal & General Investment Management (LGIM) comes after efforts this week by Kraft chief executive Irene Rosenfeld to win institutional support for the takeover, currently worth £10.5 billion.

But LGIM, which owns more than 5% of Cadbury’s shares, said: “Our position on Cadbury is unchanged; we continue to believe that the current Kraft bid does not reflect the long term value offered by the company on a stand alone basis.”

Kraft – whose products range from Oreo cookies to Toblerone chocolate – has so far increased the cash portion of its offer without raising the overall bid, but has until January 19 to sweeten the deal.

The firm is under pressure not to over-pay for Cadbury from its biggest investor, billionaire Warren Buffett, who owns around 10% of the company through his Berkshire Hathaway investment firm.

Cadbury’s shares are currently trading well above the value of the US firm’s offer – a sign that markets expect an increased bid.

The company set out its case for independence on Thursday with detailed trading figures on an “outstanding” 2009.

It again urged shareholders to shun US food giant Kraft’s “derisory” hostile bid as it reported good growth across its chocolate, sweets and gum divisions despite “mixed” trading conditions.

The bullish defence came amid reports that another US firm, Hershey, is set to challenge Kraft with a counter-bid for Cadbury although a formal offer has yet to emerge.

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January 15, 2010, 10:27 AM EST

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By Susan Berfield and Michael Arndt

Jan. 15 (Bloomberg) — Irene Rosenfeld hasn’t been around Kraft Foods Inc.’s suburban Chicago headquarters much lately. The door to her wood-paneled office is kept closed. Her desk is bare. Rosenfeld has grabbed her leather folders of meticulously compiled research and is traveling to London and around the U.S. in Kraft’s Gulfstream jet.

These trips weren’t supposed to be urgent or secretive. They’ve become both as Rosenfeld works to reassure shareholders that her about $17 billion hostile bid to buy U.K. candy maker Cadbury Plc will be good for them. She has until Jan. 19 to make a final offer, and until Feb. 2 to get a majority of acceptances from Cadbury shareholders. Rosenfeld, 56, has led Kraft since 2006 and has worked there for almost her entire professional career.

She can be pretty persuasive, John Bowlin, who ran Kraft North America in the mid-1990s, says in the Jan. 25 issue of Bloomberg BusinessWeek magazine. Early on in her career, she told her bosses that commercials for Kool-Aid should be aimed at kids, not mothers, and that Jell-O could be made modern with new flavors, according to Carol Herman, who worked on Kraft accounts at advertising firm Grey in the 1980s and 1990s and is a close friend of Rosenfeld’s. In the late 1990s, Rosenfeld turned around Kraft’s business in Canada; the first thing she had to do was to show skeptical colleagues that an American could understand Canadian consumers, Herman said.

“When she is trying to persuade you of something, she will be relentless in coming back with facts and showing you she has the support of other people,” Bowlin said. “She will be totally emotionally and intellectually committed to her idea.”

Powers of Persuasion

Rosenfeld must summon all of her powers of persuasion as she takes on her biggest marketing challenge yet: selling the Cadbury deal to shareholders. Her task is all the more difficult because she has alienated Northfield, Illinois-based Kraft’s biggest shareholder, billionaire investor Warren Buffett.

Rosenfeld told investors on Dec. 18 she planned to issue new stock to help pay for the purchase. Buffett, 79, objected to the plan in a Jan. 5 press release and urged Kraft not to overpay by using too many of its own shares. Rosenfeld and Buffett declined to comment through spokespeople.

Win or lose, the Cadbury affair “will be defining for her career,” says former Kraft Chief Executive Officer Robert S. Morrison.

Kraft is the world’s No. 2 food company after Nestle SA, selling $42 billion worth of Kraft Macaroni & Cheese, Oreos, Oscar Mayer cold cuts, and hundreds of other brands each year. It is the product of two decades of deal-making. Philip Morris International, seeking to broaden its reach beyond cigarettes, bought General Foods, the owner of Jell-O, Minute Rice, and Kool-Aid, in 1985, succeeded in a hostile takeover of Kraft in 1988, merged the companies by 1995, and bought Nabisco five years later.

General Foods

Rosenfeld got her start in market research at General Foods, which was based in Westchester County, New York, in 1981. She had spent most of the previous decade at Cornell University, completing an undergraduate degree in psychology, a master’s degree in business administration and a doctorate in marketing and statistics. Her thesis adviser, Vithala Rao, recalls that even though Rosenfeld was working and pregnant, she was determined to finish her dissertation on how consumers make decisions about purchases.

“She knew a Ph.D would give her an edge in the business world,” says Rao. “And her husband was getting one. They were a little competitive.”

When Rosenfeld presented her bosses at General Foods with research showing that Kool-Aid should be marketed directly to kids, the pitch won her a job working on the brand full-time.

First Meeting

After a presentation at one of her first meetings with Grey, Rosenfeld was so excited that she applauded. Back then, junior employees were expected to stay silent, according to Herman, the former Grey executive.

“We were all so shocked and amused by her reaction,” says Herman.

Rosenfeld came up through the ranks at General Foods and Kraft — eventually overseeing the Nabisco integration and serving as president of Kraft North America. She would call people with ideas, however big or small, late into the night, according to Herman.

“I can’t tell you how many midnight talks we had about Minute Rice and Stove Top stuffing,” Herman says.

“Irene didn’t need a lot of advice. That’s why I liked her. She was giving me the right answers,” says James Kilts, a former Kraft president who later ran Gillette.

In 2001, Betsy Holden was appointed co-chief executive alongside Roger Deromedi. Rosenfeld stayed on almost two more years, then left to join Frito-Lay, a Kraft rival.

‘Fearless’ Executive

“Irene thought about the marketing agenda and innovation much more aggressively” than the company was used to, says Indra Nooyi, the CEO of Purchase, New York-based PepsiCo Inc., which owns Frito-Lay. “She was fearless in what she did.”

When Kraft asked Rosenfeld to return as CEO in June 2006, she agreed. Kraft was faltering amid high commodity prices, increasing competition from private labels, and its focus on cost-cutting. She told Kraft’s almost 100,000 employees that the company had lost its heart and soul and needed to “rewire for growth.”

In a speech at Cornell in 2007, Rosenfeld described her return to Kraft.

“The staff was tired, raw, disillusioned,” she told the audience. “My slogan was, ‘let’s get growing.’ It’s not a warm and fuzzy strategy.”

‘Should we?’

She replaced half of her executive team and half of those in the next two levels down. She reorganized the structure of the company, changed how people receive their bonuses, and told everyone “to stop apologizing for our categories and make them more relevant.” She concluded her talk: “Sometimes I lie awake thinking, ‘Should we?’ And then I think, ‘How can we not?’”

When billionaire investor Nelson Peltz pushed her to sell some brands, she did, unloading Veryfine fruit juice and Post cereals, according to reports at that time. When she asked him not to purchase more than 10 percent of the company, he agreed.

Peltz was also an investor in Cadbury Schweppes, and he persuaded the U.K. food company to sell its soft drink division in 2008 and focus on its candy business. That would set the stage for Rosenfeld’s takeover bid and provide Cadbury its defense: It didn’t want to lose its focus by becoming part of a large company.

Even though consumers ate at home more often during the global recession and ingredient prices fell, Kraft was forced to cut prices to compete with private label products.

Kraft Stock

Kraft stock, sold to the public at $31 a share in 2001, fell as low as $21 last March. It has traded at an average of almost $29 this year.

The company introduced items such as Bagel-fuls, bagels stuffed with Philadelphia cream cheese, and created premium toppings for Kraft’s DiGiorno frozen pizza.

Rosenfeld also began studying the possibility of buying Cadbury, which sells Trident gum and chocolate in 60 countries.

“She wanted to capture the imagination of the world about what Kraft could be,” says Shelly Lazarus, chairman of advertising agency Ogilvy & Mather Worldwide, which works with Kraft.

On Aug. 28 Rosenfeld met with Cadbury Chairman Roger Carr in London to lay out her plan.

‘Brisk, Efficient’

“She was brisk, efficient, delivered her proposal and left quite quickly,” says Carr. The two haven’t spoken since, he says.

They have exchanged a few letters. In the first, which Carr sent to Rosenfeld the next week, he called the offer “derisory.” On Sept. 7, Rosenfeld announced Kraft’s bid in a news release on the corporate Web site, to try to win over shareholders directly. She spoke to several U.K. newspapers about her admiration for Cadbury and the great promise of a merger.

“I am a heavy, heavy user of Trident gum and, on a seasonal basis, I love those Cadbury eggs,” she said in a video interview posted on the Kraft site.

Rosenfeld made a hostile bid on Nov. 9.

“Our proposal offers the best immediate and long-term value for Cadbury’s shareholders and for the company itself compared with any other option currently available, including Cadbury remaining independent,” she wrote in the formal offer.

Pizza Deal

She was also juggling another deal that would determine how much Kraft could spend for Cadbury. In early 2009, Vevey, Switzerland-based Nestle expressed interest in buying DiGiorno and the rest of Kraft’s pizza business, according to Michael Mitchell, a Kraft spokesman. Rosenfeld concluded that selling the unit made sense: Frozen pizza wouldn’t do well outside of North America, and within the company it was an isolated brand. Next, she had to persuade the board.

“It was a difficult decision. But once we got our heads around the strategic and financial rationale for the deal, it became clear,” says Perry Yeatman, a Kraft spokeswoman.

On Jan. 5, Kraft said it would sell the pizza business to Nestle for $3.7 billion. The deal would give Rosenfeld the cash she’d need to pursue Cadbury. There was another benefit: Nestle, Kraft’s main rival for Cadbury, said it wouldn’t bid.

Warren Buffett

On the same day, Buffett went public with his concerns, calling Rosenfeld’s proposal to issue more shares a “blank check.” He said that while the company had bought back shares at a price of $33 a piece in 2007, it would be selling the new shares for the Cadbury transaction for far less. He also said he would support an offer that “does not destroy value for Kraft shareholders.”

“What is she wasting our money for?” says John Kornitzer, founder of Kornitzer Capital Management in Shawnee Mission, Kansas. “To chase after these guys is ridiculous.”

“No matter how this turns out, Warren looks great,” she says.

On Jan. 12, Carr released a “defense document” on Uxbridge, England-based Cadbury’s Web site, saying “the bid is even more unattractive today than it was when Kraft made its formal offer.” Kraft called the argument “underwhelming.”

Kraft Shareholders

“The clarity with which we reviewed Kraft’s own record must have been disturbing for them and illuminating for our shareholders.” Carr said.

Kraft shareholders will vote on whether to issue more stock on Feb. 1; the next day Cadbury stockholders will vote on the offer. Rosenfeld spent Jan. 12 with Cadbury investors in the U.S. before jetting to London to talk with Cadbury shareholders there. Some refused her visit, says Carr. While Rosenfeld remains determined to make Kraft bigger and more global, finding a price for Cadbury that works for everyone might be impossible.

“Rosenfeld has made it clear that she’s disciplined, that she won’t overpay,” says Donald Yacktman, president of Yacktman Asset Management, a longtime investor. “I guess we’ll find out how much she really means what she says.”

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By Emiko Terazono

Published: January 15 2010 02:00 | Last updated: January 15 2010 02:00

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January 14, 2010: 08:27 AM ET

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LONDON -(Dow Jones)- Kraft Foods Inc. ‘s (KFT) latest attempt to win over investors in Cadbury PLC (CBY) met with a lukewarm reception and shareholders are instead pinning their hopes on a rival bid from Hershey Co. (HSY), people familiar with the situation told Dow Jones Newswires Thursday.

Kraft’s chief executive Irene Rosenfeld has spent the last few days meeting with key investors in London as time runs out for the U.S. food giant to increase its GBP10 billion bid for the U.K. confectioner.

“She said nothing particularly interesting or new,” said an investor who attended one of the meetings.

“What is clear is that shareholders want between 800 pence and 850 pence and as much cash as possible–no-one wants Kraft shares,” the investor added.

Kraft’s formal bid–the only one on the table–offers Cadbury shareholders 300 pence in cash and 0.2589 new Kraft shares for each Cadbury share. It is made up of 60% stock and 40% cash.

Following an agreement to sell its U.S. and Canadian frozen pizza business to Nestle S.A. (NESN.VX), the Swiss consumer giant, for $3.7 billion Jan.5, Kraft said it was going to give Cadbury shareholders a “partial cash alternative” to its existing offer.

The new proposal, which has yet to be formalized, offers 60 pence per Cadbury share, bringing the cash part of the deal to 360 a share. Kraft did not say how much the stock element of the cash-and-shares bid would reduce by, but insisted that the increased cash element did not represent a “raised offer.” This suggests the stock element of the deal will be cut.

Cadbury dismissed this altered offer which it said “remains derisory” and investors are similarly unimpressed, hoping that U.S.-based Hershey will come in with a higher offer including a larger cash element.

“My gut feeling is that Kraft will raise its offer to between 835 pence and 850 pence a share. If Hershey then comes in higher, as it must if it serious about a bid, then Kraft will have to think hard,” said another investor who was at the meeting.

Rosenfeld gave every indication that Kraft needs the scale and scope that a takeover of Cadbury would bring, especially the U.K. group’s presence in emerging markets, the investor said. Kraft could definitely pay 900 pence but won’t unless forced to, he added.

Kraft has until Jan. 19 to raise its bid while any rival bids must be in by Jan. 23.

Hershey is continuing to work toward a bid for Cadbury, according to media reports and despite other reports that Italian chocolate maker Ferrero Spa has decided not to participate in a joint offer. A spokesman for Hershey declined to comment.

“Shares have risen on the possibility of a Hershey bid and we are hoping for more cash as well as a higher bid,” said one investor who had earlier suggested its fund would sell if any bid reached 800 pence..

Shares in Cadbury at 1230 GMT Thursday were up 0.8% or 7 pence and at 796 pence, having reversed a decline over the last week which saw the E.U. clear Kraft’s bid, Nestle pull out of the auction and Warren Buffett, Kraft’s biggest shareholder, say his holding company Berkshire Hathaway Inc. (BRKA, BRKB) wouldn’t support the issuance of new Kraft stock to pay for a Cadbury acquisition.

Kraft’s stock closed down 1.6% at $29.23 Wednesday, making its offer for Cadbury worth 764 pence a share and valuing the U.K. company at GBP10.5 billion, or $17.1 billion.

-By Marietta Cauchi, Dow Jones Newswires; +44 207 842 9241; marietta.cauchi@ dowjones.com

  (END) Dow Jones Newswires

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By April Taylor

January 14, 2010

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Next Wednesday, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) is holding a special shareholders meeting to approve the planned 50:1 split of its B shares. The B share split was announced in November, on the same day that the Burlington Northern Santa Fe (NYSE: BNI) acquisition was announced. The key rationale given for the split was to enable small Burlington Northern shareholders to select the tax-free share exchange rather than cash, though interestingly, the proxy statement announcing the special shareholders meeting indicates that the split will move forward independent of the railroad deal’s closure.

The rationale for the 50:1 split sounds shareholder-friendly — that is, for small Burlington Northern shareholders. But what about current Berkshire Hathaway shareholders? Over the years, Berkshire Hathaway CEO Warren Buffett has written about share splits, and not in a favorable way. In his 1983 letter to shareholders, Buffett wrote, “Were we to split the stock or take other actions focusing on stock price rather than business value, we would attract an entering class of buyers inferior to the exiting class of sellers.” Nearly a decade later in his 1992 letter, Buffett’s view on share splits remained consistent, “… there is no way that our shareholder group would be upgraded by the new shareholders enticed by a split. Instead we believe that modest degradation would occur.”

While stock splits are not uncommon — S&P 500 components AmerisourceBergen (NYSE: ABC), Brown-Forman (NYSE: BF-B), Fluor (NYSE: FLR), and Union Pacific (NYSE: UNP) have all done splits in the last two years — it is difficult not to pay special attention to the Berkshire split. First, the split will dramatically change the share price; this is no garden variety 2:1 split. At 50:1, the split will drop Berkshire B share prices from $3,300 per share to roughly $66 per share, making the stock accessible to small investors and traders alike, and making its addition to the S&P 500 index conceivable. Second, it is hard to ignore the past views that Buffett has expressed on stock splits.

Call me old-school, but I like the four-figure share price. What do other Fools think? Will the 50:1 Berkshire Hathaway split morph the shareholder base into a fast-trigger trading crowd that will result in higher turnover of Berkshire B shares? Or will Berkshire see little change in its B share owners? Stay tuned for more Foolish analysis following the split.

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Jan 14, 2010 11:32

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While Cadbury shares saw some life on hopes for a rival bid from Hershey — boosted by reporting from the FT that a rival offer was further along than much of the market had assumed — naysaying analysts and pundits have been quick to point out that the financials of a Hershey bid are hard to stomach.

Hershey is only half the size of Cadbury, and a big share issue would dilute the stake of the controlling Hershey Trust, which has been every bit as crucial to defining the company as the kiss. The FT report says Hershey is working on a private equity element with none other than Byron Trott, Warren Buffett’s banker of choice. The idea that Buffett, who is Kraft’s biggest shareholder, could play both sides of a bidding war is, if not new, certainly intriguing, particularly given his apparent distaste for Kraft selling its own shares to keep its bid attractive.

And while Cadbury has repeatedly denied it is looking for a white knight, a deal that would leave its management in place, perhaps in exchange for keeping the Hershey Trust intact, could be attractive enough to consider breaking off a piece of Cadbury to give to a private equity investor to chew on … its gum business, for example.

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* Cadbury calls Kraft's bid even more unattractive

 * Mandelson urges investors to take long-term view

 * Doubts raised on how Hershey can fund a rival deal

 * Cadbury shares close 1.2 percent up at 796 pence

(Releads with Cadbury comments, investor, share price)

 By David Jones

 LONDON, Jan 14 (Reuters) - Cadbury (CBRY.L) fired the final
salvo in its defence on Thursday, branding Kraft Foods' (KFT.N)
bid as more unattractive than a month ago, as Cadbury shares
rose on hopes of a rival bid from Hershey (HSY.N).

 But as Cadbury's Chairman Roger Carr attacked Kraft's bid
and its past performance, analysts remained doubtful over how
the much-smaller Hershey could finance an offer for Cadbury and
top Kraft's 10.5 billion pound ($17.1 billion) hostile bid.

 "Kraft's offer is even more unattractive today than it was
when Kraft made its formal offer in December," Carr said in a
final defence leaving Kraft five days to sweeten its offer.

 Because the bid is over half in Kraft's shares, it exposed
shareholders to Kraft's history of missed targets compared with
Cadbury's robust results and excellent momentum into 2010, while
the deal undervalued Cadbury compared with recent deals, he
added.

 This came after Britain's Business Secretary Peter Mandelson
met with fund managers to urge them to take a more long-term
view in takeover bids, and as Kraft's CEO Irene Rosenfeld went
from door to door to woo Cadbury shareholders in London.

 Hershey is still working on a Cadbury bid to top Kraft's
offer according to a source familiar with the matter on
Wednesday, while the Financial Times said Hershey had authorised
drawing up a bid for Cadbury and making an offer within weeks.
[ID:nN13171025]

 But analysts said a solo Hershey bid could be extremely
challenging as Hershey is only half the size of Cadbury and a
big share issue would dilute the controlling Hershey Trust,
while Kraft still has the option to sweeten its current bid.

 "We view a solo Hershey bid as a probability of 15 percent.
We estimate a two-third probability of Kraft winning," said
analyst Simon Marshall-Lockyer at Jefferies International, with
the other probability being Cadbury remaining independent.

 Other analysts pointed out that under the current timetable,
Hershey only has nine days to come up with a formal offer which
could prove tight if it is looking for partners to finance the
bid and find buyers for parts of the Cadbury's business.

 The FT report said Hershey was discussing a plan to
authorise banker Byron Trott to bring private equity investors
into the deal. Trott is a favourite adviser of Warren Buffett,
whose Berkshire Hathaway (BRKa.N) is Kraft's top shareholder.

 Marshall-Lockyer believes Hershey would likely have to sell
its KitKat franchise in the United States back to Nestle
(NESN.VX) for around $1.6 billion and then sell Cadbury's
Trident gum business for $12.9 billion to leave Hershey with
Cadbury's chocolate and candy businesses.

 Cadbury has been defending itself for over four months
against Kraft's bid worth 762 pence against Cadbury shares which
closed 1.2 percent higher at 796p on Thursday, while analysts
and investors say that Kraft needs to offer 800p or above to
succeed.

 Under UK takeover rules, Kraft has until Jan. 19 to sweeten
its bid, while Hershey has until Jan. 23 to declare its hand and
Cadbury shareholders until Feb. 2 to decide on the Kraft bid.

 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a graphic comparing Cadbury, Kraft and Hershey:
here
For a BREAKINGVIEWS column, click on [ID:nLDE60D0M2]

 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 

 Analyst Jeremy Batstone-Carr at Charles Stanley says any
Hershey approach would have to be in cash and shares and involve
a rights issue to leave the Hershey Trust without control. Even
with selling off KitKat in the US and Cadbury's gum, Hershey
would still struggle to mount a stand alone bid, he added.

 "We view the likelihood of its success as low, particularly
given our strongly held belief that Kraft will raise its offer,"
Batstone-Carr said.

 Meanwhile, Britain's Mandelson was urging big investors to
take a longer-term view and not ignore local and workforce
interests in takeover situations. [ID:nLDE60D0DA]

 "I ask Cadbury shareholders to take a longer view of
shareholder value. I'm not in a position to block takeovers but
I do have an obligation to raise and ask questions," he said.

 While Kraft's Rosenfeld struggled to convince Cadbury
shareholders of her case according to one top stockholder.

 "Kraft didn't have much to say. In fact, I thought it was a
bit of a waste of time really. They seemed to be saying we are
here now and you will hear from us at a later stage. They talked
about strategy, but there was nothing beyond that".
($1=.6139 Pound)
(Additional reporting by Victoria Howley and Raji Menon)
(Reporting by David Jones; Editing by Jon Loades-Carter)

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Hershey has been forced to accelerate plans to go it alone with an attempt to gatecrash Kraft’s £10.5bn hostile offer for Cadbury after a club deal that included Italy’s Ferrero fell through.

By Helia Ebrahimi and Amy Wilson
Published: 6:05AM GMT 14 Jan 2010

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The US chocolate maker had been working on a secret three-way consortium bid that also included private-equity owned United Biscuits.

But those talks broke down after a meeting in London between Ferrero, investment bank NM Rothschild and US private equity house Blackstone – the owner of United Biscuits. That has left Hershey, long seen as a white knight for Cadbury, urgently pursuing a solo bid.

Sources close to Hershey said the consortium’s failure to agree terms meant the US company had no other option but to work harder to finalise details of a possible solo bid.

“Having less options has sharpened the Hershey mind,” said the source.

The US company is now grappling with three hurdles: how to win approval from its controlling charity trust, which holds 80pc of Hershey’s voting rights and will determine the mix of the proposed cash and shares bid; the terms of the financing package it is agreeing with JPMorgan and Bank of America Merrill Lynch that will allow the £5.1bn company to raise enough debt without damaging its investment-grade credit status; and the price it would have to offer to land Cadbury.

Plans could include a direct investment of £767m by the Hershey Trust in exchange for an increased stake in the enlarged group. Hershey has also employed financier Byron Trott, who is close to major Kraft shareholder Warren Buffet, to sound out other private equity to back a deal.

The development comes before next Tuesday’s final deadline for Kraft to raise its cash-and-shares offer though Kraft could raise its bid again in the face of a rival offer.

Under previous plans the proposed consortium would have made a higher offer and broken the company up with Hershey taking the US business, United Biscuits the UK operations, and Ferrero – maker of Tic Tacs and Nutella – would have got Cadbury’s European operations.

Ferrero, an entrepreneurial business still run by its Italian founding family, is notoriously conservative. The cash-rich company, led by patriarch Michele Ferrero, has always expanded without acquisitions.

The Hershey insider said that while a three-way bid was cheaper for the US chocolate maker strategically it made more sense to attempt its own Cadbury merger.

Kraft also moved to make its cash-and-shares offer to Cadbury more attractive on Wednesday, raising its profit forecast for the second time in two months. The US maker of Toblerone and Dairylea cheese expects earnings per share of $2 (£1.22), up from a November forecast of $1.97.

Kraft’s shares rose to $29.51, their highest price in the past year, on the news. That pushed up the value of its offer for Cadbury to 769p – still below the UK company’s share price, which closed last night at 789.5p.

As the deadline for Kraft’s final offer looms, unions and politicians are stepping up their campaign for Cadbury to remain independent.

The Unite union claimed a Kraft takeover could cost 7,000 Cadbury jobs in Britain, a claim strongly denied by the US company.

The defence of Cadbury will also be discussed on Thursday at a meeting in London of top institutional investors and Government ministers, led by Lord Mandelson, the Business Secretary, and Lord Davies, the trade minister.

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January 14, 2010, 02:14 AM EST

By Sungwoo Park

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Jan. 14 (Bloomberg) — Posco, Asia’s most profitable steelmaker, posted the highest net income in six quarters and said capital expenditure will soar to a record this year as demand rebounds with the global economic recovery.

Net income advanced to 1.28 trillion won ($1.1 billion) in the three months ended Dec. 31, from 721.4 billion won a year earlier, according to calculations derived from full-year results released today by the Pohang, South Korea-based company. Spending for 2010 will reach 9.3 trillion won, and sales will surge 9.3 percent, it said.

The global steel market has bottomed and will grow by 9.2 percent in 2010 as demand rebounds in the U.S., Europe and Japan, the World Steel Association said Oct 12. Posco is planning $30 billion of overseas expansion in India, Indonesia and Vietnam to regain its spot as Asia’s largest steelmaker.

“Posco was able to recover faster than anybody in the market,” the company said in the statement. “We weathered the crisis by cutting output by only 20 percent in the first half, while global rivals had to cut by more than 40 percent.”

Shares of Posco, which counts Warren Buffett’s Berkshire Hathaway Inc. as a stakeholder, fell 0.7 percent to close at 592,000 won in Seoul trading. They rose 63 percent last year compared with an 89 percent gain in ArcelorMittal, the world’s largest steelmaker.

Fourth-quarter operating profit was 1.59 trillion won, the company said.

Posco will raise crude steel output by 16.6 percent to 34.4 million metric tons this year, as sales may advance to 29.5 trillion won, it said. It plans to cut 1.15 trillion won of costs.

‘Recession Defying’

“Posco will probably continue to report solid, recession- defying earnings through the second quarter of this year,” Chung Ji Yun, an analyst with HI Investment & Securities Co., wrote in a Jan. 11 report. “Growing chances that the company will raise local steel prices are behind the outlook.”

Posco is the only steelmaker among the 10 biggest globally that didn’t report a loss in any quarter in the 12 months ended Sept. 30, according to data compiled by Bloomberg.

“The market has recovered and raw material costs declined in the second half,” Posco said.

Fourth-quarter operating profit increased 14 percent to 1.59 trillion won from a year earlier, while sales dropped 12 percent to 7.29 trillion won, the Korean steelmaker said today.

‘Aggressive Management’

Posco will pursue “aggressive management to seize opportunities ahead of others in the post-crisis era,” Posco Chief Executive Officer Chung Joon Yang said in the statement.

The company intends to build a $7 billion plant in India’s Karnataka state, according to the state government this month. This will add to the $12 billion steel plant and iron ore mining project in Orissa state. Posco has also agreed to invest $5 billion in Vietnam, and is in a $6 billion Indonesian venture.

The Korean mill may post a record operating profit this year as it is likely to raise steel prices in tandem with increasing global rates, Kyobo Securities Co. said Jan. 11. Domestic prices of Posco’s hot-rolled coils should advance by 20 percent in 2010, Seoul-based Cindy Park, an analyst with Nomura International Ltd., wrote in a Dec. 10 report.

Hot-rolled sheet prices in China, the largest consumer of steel, have gained 15 percent since the end of September as the nation’s $586 billion stimulus spending boosted demand from builders, automakers and manufacturers of appliances.

Baoshan Iron & Steel Co., China’s largest steelmaker, raised benchmark steel prices by 8 percent for January delivery last month, the first increase since September.

Car Sales

South Korean carmakers including Hyundai Motor Co., the nation’s biggest, raised production by 45 percent in December from a year ago, according to data provided by the Korea Automobile Manufacturers Association on Jan. 7.

Posco, which derived about 70 percent of sales in South Korea in 2008, slashed local prices of hot-rolled coils by 20 percent in May, the first price cut since January 2006. The company sells steel to carmakers including Hyundai Motor.

Steelmakers will have to contend with the rising costs of iron ore and coking coal this year. Iron ore prices plunged 33 percent and coal almost 60 percent in 2009 in the recession.

Iron ore contract price may jump 40 percent to 50 percent in 2010, Nomura Holdings Inc. said Jan. 11.

–Editors: Tan Hwee Ann, Richard Dobson.

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Thursday, 14 January 2010

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The Hershey Co is assembling a bid to acquire British confectioner Cadbury PLC without the help of Italian chocolatier Ferrero International, a person familiar with Hershey’s plans told The Associated Press on Wednesday.

Meanwhile, the company that bid first, American food giant Kraft, continued to defend its offer and issued an earnings forecast that may have been intended to show off its strength.

Hershey has been working on two parallel bids for Cadbury – one with Ferrero and one on its own. But Ferrero reportedly has withdrawn. Hershey is still crafting its own potential bid, the person familiar with Hershey said.

The person, who spoke on condition of anonymity because the person was not authorised to speak publicly about the matter, said Hershey hoped to avoid a bidding war by waiting until Cadbury’s shareholders decide on a competing $US16.5 billion ($A17.94 billion) bid by Kraft Foods Inc.

Kraft has until Feb 2 to win support from a majority of shareholders. It said last week that it had received acceptance from holders of 1.5 per cent of Cadbury shares to date. Kraft’s deadline to increase its bid is Jan. 19.

A spokesman for the maker of Hershey’s Kisses and Reese’s peanut butter cups said that, as a matter of policy, the company does not comment on merger and acquisition issues.

Cadbury shares rose, adding 12.5 pence, or 1.6 per cent, to close at 789.50 on the London Stock Exchange. Hershey shares fell 93 cents to $36.82 in afternoon trading on the New York Stock Exchange.

An Italian business daily reported Wednesday that Ferrero International SA is no longer interested in bidding for Cadbury. The paper, il Sole 24 Ore, cited unidentified sources close to the family-run Italian firm.

Ferrero did not comment on the report.

Any bid for Cadbury would involve bringing jobs and assets to Hershey, while voting control of the company would remain with the charitable trust set up by its late founder, Milton S. Hershey, the person said.

In November, Hershey and Ferrero told the London Stock Exchange they were considering an offer for Cadbury but cautioned one might not materialise.

Without a well-financed partner, analysts question how Hershey alone can afford the acquisition of the larger Cadbury. Hershey is America’s most recognisable name in chocolate, but it is dwarfed by some of the world’s other major confectionary makers, including Mars Inc. and Nestle SA.

Hershey posted revenue of $US5.13 billion ($A5.58 billion) in 2008, while Cadbury reported $US7.8 billion ($A8.48 billion) in 2008.

On Wednesday, Kraft maintained that it would be the best partner for Cadbury. Kraft shares fell 3 cents to $29.26.

If Kraft does win Cadbury, it would combine the world’s second-largest food maker with one of the world’s largest confectioners.

But Kraft, based in Northfield, Illinois, is under pressure from its biggest shareholder, billionaire investor Warren Buffett, not to sweeten its offer with more shares, which he believes are undervalued. And it’s unclear what move Kraft will make now.

Analysts – worrying Kraft will overpay if it gets into a bidding war and wouldn’t see long-term gains from an acquisition as a result – have been cautious.

Cadbury has staunchly opposed a Kraft takeover. On Tuesday, Cadbury’s brass again urged shareholders to vote against the deal and criticised Kraft’s business model.

But Tuesday’s boost in Kraft’s full-year profit outlook was the second in two months. After logging profit gains, Kraft now expects to report earning at least $2 per share for 2009. It earlier forecast profit of at least $1.97 per share. The new outlook is in line with analyst expectations, but some analysts were critical.

“It’s a blatant attempt to spin the news,” said D.A. Davidson & Co. analyst Tim Ramey. Kraft moved its guidance to meet Wall Street expectations on a quarter that ended two weeks ago, he said.

Kraft may also be setting the stage for a graceful exit from bidding for Cadbury.

CEO Irene Rosenfeld said the company will be able to deliver “sustainable top-tier performance, with or without Cadbury.”

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Jan. 12, 2010 | Filed Under: KFT

By Geoff Gannon

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Tuesday, January 5^th, 2010 – Warren Buffett’s Berkshire Hathaway announces it will vote “no” on Kraft’s proposal to issue 370 million new shares.

Kraft’s CEO wanted to use the new shares as ammo in her hostile takeover of Cadbury. Buffett shot her down. Why?

Because Kraft’s stock is too cheap.

Here’s what Buffett wrote:

“What we know with certainty…is that Kraft stock, at its current price of $27, is a very expensive ‘currency’ to be used in an acquisition. In 2007, in fact, Kraft spent $3.6 billion to repurchase shares at about $33 per share, presumably because directors and management thought the shares to be worth more.”

Buffett also bought Kraft around $33 a share. Page 15 of last year’s annual letter to shareholders shows that Berkshire’s 130 million plus shares of Kraft cost $33.24 a piece.

What Does Buffett See in Kraft?

1. Brands that will never be duplicated.

· Kraft products are in more than 99% of American homes

· The company has 9 brands with more than $1 billion in sales

· And 40 brands started before 1910

2. A dominant competitive position.

· 80% of Kraft sales come from products with the #1 market share in their category.

· And 50% of sales come from categories where Kraft’s market share is more than twice that of their nearest competitor.

3. Good margins.

· On average, Kraft turns 7.7 cents of each sales dollar into free cash flow.

· Kraft’s U.S. Groceries – its salad dressings, barbecue sauces, Cool-Whip, Grey Poupon, and Jell-O – have the same profit margin as Google (GOOG).

· The company’s cheeses have margins equal to Heinz (HNZ).

4. Managers focused on the right things.

· Kraft sends most of its free cash flow straight to shareholders in the form of a $1.16 a share dividend – giving the stock a dividend yield of 4%

· In 2007, the company started buying back gobs of its own shares – giving each shareholder a bigger slice of the same pie

· They’re cutting costs

· And restructuring foreign businesses to look more like the American business

The 4 Questions Warren Buffett Asks Before Buying a Stock

Those are good reasons for any investor to buy Kraft. But Warren Buffett has four specific questions he asks before buying any stock:

1. Does he understand the business?

2. Does it have favorable long-term prospects?

3. Is it operated by honest and competent people?

4. And is it priced very attractively?

Does Kraft Pass Warren Buffett’s Test?

No.

It fails question number 4.

At least it would if Buffett’s four questions had stayed exactly the same as they were in 1977.

Question #4 – “Is it priced very attractively?” – is the reason Berkshire sometimes holds off buying any stocks at all. Buffett is always on the lookout for great businesses and he usually finds them. But he can’t always find them at the right price.

The Warren Buffett of 1977 wouldn’t buy Kraft, because that Warren Buffett only bought super cheap stocks. Today Buffett has to settle for slightly cheap stocks because there simply aren’t enough super cheap stocks to soak up all of Berkshire’s cash.

To solve this problem Buffett lowered his standards and changed question #4 to:

“Is it pricedvery attractively?”

Kraft passes this test. That’s why Buffett bought it.

Should you?

What is Kraft Worth?

Warren Buffett values companies according to something he calls owner earnings:

“…we consider the owner earnings figure, not the GAAP (Generally Accepted Accounting Principle) figure, to be the relevant item for valuation purposes – both for investors in buying stocks and for managers in buying entire businesses. We agree with Keynes’s observation: ‘I would rather be vaguely right than precisely wrong.’”

So what’s the vaguely right earnings number for Kraft?

My guess is $1.85 a share.

It’s a somewhat arbitrary number. But only somewhat.

If you take Kraft’s free cash flow from 2000 through 2008 and adjust it for the number of shares out today you get $1.75 a year in free cash flow. If you take the last three years as a short-term average you get $1.73 a share.

Kraft’s sales are higher now than they were in those years. If you slap Kraft’s historical free cash flow margin of 7.7% on the today’s sales you get $2.07 a share in free cash flow.

(This assumes sales will be down 6% from last year but doesn’t adjust for the sale of the pizza business.)

Like I said: arbitrary.

But averaging the three figures and taking $1.85 a share as your owner earnings is the vaguely right approach.

Yes – you can substitute $1.75 or $1.73 or $2.07 or anything in between if you want. No one will smite you for it. The important thing is putting some numbers in and taking some emotion out.

This eternal stream of cash flow from Kraft stock needs to be compared to something if we want to put a dollar value on the shares.

I’m going to use the yield on investment grade corporate bonds – 4.89% – which means inverting the yield (1/0.0489 = 20.45) and multiplying Kraft’s owner earnings by that number.

Which is a fancy way of saying each share of Kraft is worth its owner earnings times the price people are willing to pay for each dollar of corporate promises.

Right now investors are willing to pay $20.45 per dollar of corporate promises they believe.

Kraft stock promises $1.85 in owner earnings.

That promise should be worth $37.84 a share.

Right?

Maybe vaguely.

It depends on a lot of things. The biggest is the quest for Cadbury – a subject I’ll take up tomorrow.

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Ferrero, the Italian maker of Kinder chocolate eggs and Nutella spreads, looks set to rule itself out of the bid battle for Cadbury, strengthening Kraft’s chances of sealing a £10.5 billion-plus takeover.

Ferrero declared in mid-November that it was interested in a possible bid and was believed to be talking with Hershey, the American chocolate maker, about a joint offer.

But the privately owned Italian group has reportedly dropped talks with Hershey and has decided not to bid.

A source close to the situation told Reuters that Ferrero would not be proceeding with a bid. A second source close to Ferrero told the news agency that the company had also broken off talks with Hershey.

On their own neither it nor Hershey have the financial resources to buy the whole company and neither have publicly listed shares to offer as a currency.

Michele Ferrero, the head of the Ferrero family, is said to be have been lukewarm about bidding for Cadbury all along, because he wanted to keep the business independent rather than involve other investors.

It was his sons, Pietro and Giovanni, managing directors of the family business, who were thought to be more eager to do a Cadbury deal.

Ferrero could not be reached for comment this morning.

Last week, the Swiss food group Nestle ruled itself out of bidding for Cadbury, at the same time as it bought Kraft’s frozen pizza business for $3.5 billion.

Yesterday, Cadbury executives poured scorn on Kraft’s £10.5 billlion cash and shares offer, calling it derisory and pointing out that Kraft’s management team, led by the chairman and chief executive Irene Rosenfeld, had consistently over-promised and under-delivered.

In response, Kraft today raised its earnings guidance for 2009 from $1.97 to least $2 a share.

The American company said that its increased guidance “reflects strong operating gains as well as a significant increase in marketing investments versus the prior year”.

Ms Rosenfeld said: “As we complete our turnaround we’re delivering high-quality earnings growth, despite the difficult earnings environment … We’re well positioned to deliver sustainable top-tier performance, with or without Cadbury.”

Kraft has until next Tuesday, January 19, to raise its offer, now worth about 760p per Cadbury share.

Cadbury investors are seeking about 850p and Kraft may inject more cash into its offer to appease its own investors, such as Warren Buffett, who had objected to it issuing too many new shares.

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In the £10.5bn bid battle for Cadbury, its chairman Roger Carr has never once been behind his tormentor, Irene Rosenfeld, chairman and chief executive of Kraft.

By Damian Reece, Head of Business
Published: 6:00AM GMT 13 Jan 2010

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He took another stride up the hill yesterday to consolidate the high ground with a second defence document that was able to highlight Cadbury’s own trading as reasons to stay in the stock, rather than simply resort to knocking Kraft’s offer. There was plenty of knocking copy but it wasn’t the main focus. In fact most of the negative spin came from Kraft, upset at what it saw as Cadbury playing fast and loose with the numbers.

One moan was Cadbury’s use of its 2009 figures to compare the value of Kraft’s offer, rather than 2008, which puts the deal in a less favourable light. Given the 2009 figures are now out and are historic, rather than prospective, that looks okay to me.

Kraft was also cross that there was no profit forecast for the first three months of 2010. There is one but Cadbury can’t publish it because no accountant will verify it based on just 12 days of trading, which seems a reasonable defence. Kraft reckons it’s because Cadbury has been deliberately over-trading in the Christmas period, stuffing the retail channel with stock which will be hanging around until Easter, obviously hitting 2010’s first three months’ trading.Cadbury dismisses this and keeps promising “good teen margins” by 2011, which is what shareholders want to hear.

Looking through the Cadbury statement there simply doesn’t seem to be a good reason to sell the company, and Kraft certainly hasn’t been able to come up with one yet. A 10pc rise in Cadbury’s dividend for 2009 summed up the company’s confidence yesterday, with numbers meeting, or beating, the market’s expectations.

It’s possible that Cadbury has peaked but why would Kraft want to buy it if so? It’s obvious Kraft thinks Cadbury has bags of potential but why share it? At least, why share it at the current price being offered by Kraft?

That’s the problem with Rosenfeld’s story. It’s not that it lacks logic for her shareholders but it lacks logic for Cadbury’s.

It’s obvious why Cadbury would be a good buy for Rosenfeld but anyone occupying the same lofty position as Carr can easily see her coming. That leaves price.

Plenty of experts are predicting a higher offer and on that score Rosenfeld should remember three numbers. At 800p and below Carr wins. At 825p it’s more difficult for Carr to defend but with only 20pc of Cadbury shares in the hands of arbitrageurs wanting a quick exit, it’s definitely worth Carr fighting to the death, leaving the outcome uncertain. At 850p she wins, with a blessing from Carr, leaving Rosenfeld the simple task of persuading Warren Buffet, her largest shareholder, of what a great deal he’s got.

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