The report of Warren Buffet trying to hold back Kraft Foods Inc. in its quest to acquire Cadbury Plc elicited a strong sense of déjà vu for those who had witnessed Buffett restraining investor who helped scuttle Coca-Cola Co.’s bid for Quaker Oats, 10 years ago. Buffett’s Berkshire Hathaway Inc., Kraft’s biggest shareholder (9.34 per cent), urged fellow investors to oppose a plan to issue as many as 370 million shares that would help Kraft secure Cadbury – UK-based candy maker.
Last two days have witnessed a plethora of action in the takeover battle that has been going on since September when Kraft first approached Cadbury with a 300p offer. On Tuesday, Kraft announced the sale of its frozen pizza business to Nestle for a total consideration of $3.7 billion and its intentions to use the proceeds of the sale to raise the cash portion of its offer for Cadbury. In exchange, Nestle gave its words to Kraft that it will not bid for Cadbury. Kraft also sweetened its bid to 360 pence, while reducing the stock consideration to appeal to the confectionery firm’s shareholders and thwart other potential bidders
Kraft’s original cash-and-share offer for Cadbury comprised 300 pence in cash and 0.2589 new Kraft shares for each Cadbury share, valuing the Dairy Milk maker at GBP10.2 billion, or 745 pence a share. Cadbury has repeatedly described the offer as ‘pitiful’ and according to analysts an offer will have to be close to 800 pence to have any chance of success. The current offer is closer to 750 pence a share.
Kraft Foods Inc said Wednesday it had received acceptances for its offer from Cadbury’s shareholders representing just 1.52 per cent of the UK confectioner’s shares, as the vast majority of Cadbury’s shareholders, including Berkshire Hathaway appeared happy to wait for a higher bid. Berkshire chairman Berkshire said it may support a Cadbury takeover if it concludes this month that the final offer “does not destroy value for Kraft shareholders.”
Buffett raised his voice of dissent on Coca-Cola’s acquisition for Quaker Oats, the maker of Gatorade in the year 2000. At that time Buffett argued that the price was too high and the board eventually voted against the acquisition. PepsiCo Inc. finally bought Quaker Oats in August 2001 for $14 billion and Berkshire still remains the largest shareholder in Coca-Cola.
As far as the Kraft-Cadbury deal is concerned, shareholders will meet on February 1 to approve its proposal, and Cadbury shareholders have until February 2 to accept the offer.