Will Warren Buffett Give His Blessing to Kraft's Friendly Deal for Cadbury?


Despite Warren Buffett's very public concerns about Kraft Foods overpaying for British confectioner Cadbury, the two companies are reportedly close to a friendly deal at the sweetened takeover price of $19 billion.

CNBC's David Faber, the Financial Times, New York Times, and the Wall Street Journal, are among those reporting tonight (Monday) that an agreement could be announced as soon as early tomorrow morning, ending a nasty five-month takeover battle.

It values Cadbury at 840 pence a share plus a ten pence dividend. The cash portion would increase from 300 pence to 500 pence.

Latest Cadbury stock price in New York trading:

Cadbury had rejected Kraft's latest stock and cash bid, valued last week at 771 pence, as too low.

There's mixed news for Warren Buffett and Berkshire Hathaway, Kraft's largest shareholder with a stake of over 9 percent.

Earlier this month, Berkshire very publicly criticized Kraft's directors and management for their continuing takeover effort. In a news release that appeared to reflect Buffett's own opinion, Berkshire said "we worry very much" that Kraft might raise its bid for Cadbury again, and said it would vote against Kraft's proposal to authorize the issuance of up to 370 million shares to facilitate a deal.

Back in September, Buffett told us that Kraft's offer at that time of $16 billion was a "pretty full price" and that Kraft will have to "do a lot of things right to justify" paying that much.

He can't be happy that Kraft is now agreeing to pay another $3 billion.

On the other hand, Kraft's increased reliance on cash would be a positive for Buffett and Berkshire. The January 5 news release accused Kraft of potentially relying too much on its "undervalued" stock in buy Cadbury. "Kraft stock, at its current price of $27, is a very expensive 'currency' to be used in an acquisition."

Kraft's stock price has climbed to $29.58 a share since that day. Current price:

Berkshire also worried the share-issuance proposal would "give Kraft a blank check" to change its offer for Cadbury "in any way it wishes."

At the time, Berkshire left open the possibility of changing its vote and supporting a deal if Kraft's final offer "does not destroy value for Kraft shareholders."

Now that a merger pact is solidifying, Buffett will have the hard numbers he wanted to make that decision.

But, as David points out in his January 5 Faber Report post, there may not be a shareholder vote at all if Kraft structures the deal so that it does not need to issue more than 20 percent of its outstanding shares.

Current Berkshire stock prices:


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