Buffett Watch

Warren Buffett: Confidence in Kraft?

Boxes of Kraft Macaroni and Cheese are seen Wednesday, April 19, 2006, in Milwaukee. Kraft Foods Inc. releases first-quarter earnings after the bell. (AP Photo/Morry Gash)
Morry Gash

In what may be a "vote of confidence" in Kraft Foods' turnaround strategy, Warren Buffett's Berkshire Hathaway has acquired a "small stake" in the company, according to the Wall Street Journal.  The paper quotes a "person familiar with Berkshire's share purchase" as saying it represents less than 5% of Kraft's $55 billion market capitalization.

Kraft shares, however, aren't getting a pop in early trading today:

Kraft is under pressure from activist investor Nelson Peltz, who reportedly owns a 3% stake and wants Kraft to sell some of its businesses to pay for a stock buyback.  Carl Icahn also has some Kraft shares, but the Journal says he "isn't agitating for change" as he has at other companies including Time Warner and Motorola.

While the Journal says it is "unclear whether Mr. Buffett sides with the activists or with management" it could mean he thinks "management is on the right track with its plan to restructure."

The company's strong brand names, including Oscar Mayer hot dogs and (my college staple) Kraft Macaroni & Cheese. could represent the kind of "moat" Mr. Buffett looks for in a value investment.

The New York Times DealBook notes that there were rumors last month that Mr. Buffett was buying Kraft shares.  That speculation was given a boost by Mr. Buffett's "comments at an annual meeting this year that he would consider an acquisition in the $60 billion range, which is about the market value of Kraft."

Earlier this month, CNBC's Jim Cramer turned positive on Kraft, admitting that he was too negative on the company after its spin-off from Altria earlier this year.  On July 17's Mad Money, Cramer recommended following Peltz and Icahn into Kraft, noting their strong track records at picking stocks.  Presumably, having Buffett in the game makes Kraft even more attractive to Cramer.

And NewsVisual has this interesting map of Mr. Buffett's connections to Kraft, including Marla Gottschalk.  She's now CEO of the Berkshire Hathaway company The Pampered Chef, after spending more 10 years at Kraft.

Questions?  Comments?  Email me at buffettwatch@cnbc.com