{"id":187072,"date":"2010-01-16T00:53:00","date_gmt":"2010-01-16T05:53:00","guid":{"rendered":"tag:blogger.com,1999:blog-3087194156628161158.post-7756877776722074520"},"modified":"2010-01-16T01:00:33","modified_gmt":"2010-01-16T06:00:33","slug":"businessweek-ackman-buys-2-kraft-stake-urges-more-cash-for-cadbury-offer","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/187072","title":{"rendered":"BUSINESSWEEK: Ackman Buys 2% Kraft Stake, Urges More Cash for Cadbury Offer"},"content":{"rendered":"

January 16, 2010, 12:25 AM EST<\/p>\n

<\/span><\/p>\n

\"Fishpond\"<\/a>
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By Christine Richard and Zachary R. Mider<\/p>\n

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.<\/p>\n

Ackman\u2019s 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\u2019s stake in Kraft is now the firm\u2019s biggest holding.<\/p>\n

Pershing thinks \u201cvery highly of Irene Rosenfeld and her business plan,\u201d and believes Kraft\u2019s 11 billion-pound ($17.9 billion) stock-and-cash bid for Cadbury makes \u201ctremendous sense,\u201d Ackman said. Kraft risks diminishing the deal\u2019s merits by issuing too much stock to pay for it, he said, echoing a warning by investor Warren Buffett on Jan. 5.<\/p>\n

\u201cThe more Kraft stock they issue, the less interesting this deal is,\u201d Ackman said. \u201cFortunately, the seller also prefers cash.\u201d Ackman said Kraft stock is \u201cextremely undervalued.\u201d<\/p>\n

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.<\/p>\n

Buffett\u2019s Berkshire Hathaway Inc., Kraft\u2019s 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 \u201cblank check\u201d to raise the bid.<\/p>\n

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.<\/p>\n

\u2018Great Confidence\u2019<\/p>\n

Ackman\u2019s investment \u201cis a sign of great confidence in our management and our company\u2019s future prospects,\u201d said Michael Mitchell, a Kraft spokesman, in an e-mailed statement.<\/p>\n

Ackman said Hershey Co., the Pennsylvania-based chocolate maker that\u2019s controlled by a charitable trust, won\u2019t submit a rival bid because it would imperil its own financial viability.<\/p>\n

\u201cI don\u2019t see how the trustees of a charity can put at risk everything that Milton Hershey built to do a leveraged buyout of Cadbury,\u201d he said. Hershey has been weighing a bid and has until Jan. 23 to make a final decision.<\/p>\n

Kirk Saville, a Hershey spokesman, declined to comment.<\/p>\n

It\u2019s 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, \u201cwe were wrong.\u201d<\/p>\n

Current Offer<\/p>\n

Kraft\u2019s 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\u2019s shares yesterday. Kraft is also offering Cadbury shareholders an option to substitute up to 60 pence of shares with cash.<\/p>\n

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\u2019s 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.<\/p>\n

Rosenfeld was in London last week meeting with major Cadbury shareholders. The U.K. company\u2019s 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\u2019s offer currently values the stock at 771 pence.<\/p>\n

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.<\/p>\n

\u201cThere were so many investment banks working on the deal that there hasn\u2019t been good research on what the combination would look like,\u201d Ackman said. \u201cWe think that\u2019s among the reasons that Kraft is undervalued.\u201d<\/p>\n

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\u2019s bid. JPMorgan Chase & Co. and Bank of America Corp. are in discussions about financing a Hershey bid.<\/p>\n

–With assistance from Duane Stanford in Atlanta. Editors: Jennifer Sondag, Elizabeth Wollma<\/p>\n

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