Warren Buffett has weighed into Kraft’s hostile takeover bid for Cadbury, warning the US giant
not to use too much of its stock to finance the proposed £10.4bn deal.
Buffett's Berkshire Hathaway, is the largest shareholder of Kraft at 9.4%, says it will vote against the US group's proposal to issue 370m shares to pay for the deal.
The statement follows Kraft's $3.7bn sale of its North American pizza business to Nestlé, a move to add more cash to the Cadbury deal.
"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 $3.6bn to repurchase shares at about $33 per share, presumably because the directors and management thought the shares to be worth more," Berkshire says.
"Does the board now believe those purchases were a mistake and that Kraft's true value is only the current price of $27 per share - and that it is therefore fine to structure a major acquisition based upon that price? Would the directors use stock as merger currency if the price were, say, $20 per share?
"Our understanding is that Kraft must announce its final offer for Cadbury by January 19th. If we conclude at that point that the offer does not destroy value for Kraft shareholders, we will change our vote to ‘yes'."
Berkshire's statement, along with Nestle's decision to rule out a move for the UK confectioner, hit Cadbury's share price yesterday and send Kraft shares higher. This could actually help Kraft clinch the deal, industry commentators believe, as it sent Cadbury shares closer to the Kraft offer.
Cadbury is 1.28% lower to 769p in early trading this morning.
