Warren Buffett, the billionaire investor, today admitted he has “a lot of doubts” about Kraft’s £11.9 billion takeover of Cadbury, the British confectioner, adding he now “feels poor” in the wake of the deal.
Yesterday, Cadbury finally accepted an 850p a share offer from Kraft after a five-month fight for control of the maker of Dairy Milk chocolate.
The deal does not need to be approved by Kraft shareholders, but Mr Buffett, who is the largest shareholder in the American food conglomerate, told CNBC news today, “If I had a chance to vote on this, I’d vote no.”
He added that “deal momentum” fuelled by investment bankers may have pushed Kraft’s bid for Cadbury forward. Kraft shares fell 2.31 per cent to $28.73 per cent today after Mr Buffett’s comments.
During the five-month fight, Mr Buffett warned Irene Rosenfeld, the chairman and chief executive of Kraft, not to raise her initial offer and a company proposal authorising it to issue more stock to fund the deal would “give Kraft a blank cheque allowing it to change its offer to Cadbury — in any way it wishes.”
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Despite his reservations about the takeover, Mr Buffett said he would not sell his stake of more than 9 per cent in Kraft, which he said would be too expensive because the stock is still “undervalued”, although not as undervalued as it was three weeks ago.
Mr Buffett also strongly criticised Kraft’s recent sale of a pizza business to Nestl? for $3.7 billion, a price he believes was too low.
But he added that Kraft’s chief executive officer, Irene Rosenfeld, was a “good operator” and a “good person”. Despite their “difference of opinion” on the Cadbury bid, he described his relationship with her as “cordial”.
Mr Buffett’s Berkshire Hathaway is not eligable to vote on the takeover under New York Stock Exchange rules. The amount of stock Kraft is issuing to fund the deal comes to less than 20 per cent of its existing shareholder base and under the rules it is not a mandatory requirement to hold a shareholder vote in these circumstances.
Mr Buffett was speaking before a meeting of shareholders in Berkshire Hathaway, his investment vehicle, which has been called to vote on splitting the company’s Class B shares.
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The 50-for-one stock split is linked to Berkshire Hathaway’s plan to buy the Burlington Northern Santa Fe (BNSF) railway corporation and will enable Berkshire to offer even small BNSF shareholders Berkshire stock as part of its $26.3 billion cash and stock deal.
The stock split will make Berkshire’s Class B stock much more affordable at roughly $67 per share, compared with the current price of more than $3,000. Berkshire’s Class A shares, which remain the most expensive US stock at more than $100,000, will not be split.
Although he believes that the move is necessary to complete the Burlington Santa Fe deal, Mr Buffett is not a fan of stock splits, and said that he enjoyed it “as much as I enjoy preparing for a colonoscopy”.
He also told CNBC that he does not approve of President Obama’s proposed tax on banks to help to pay for the US Government’s bailout of financial firms. It is not fair for banks that have already repaid the Government’s investment in them to be forced to make up Washington’s losses on Fannie Mae and Freddie Mac, he said.
“The banks are cleaning up their own mess,” he said, adding that many are not making “obscene profits”.
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But he said that he did have a problem with bank chief executives getting big pay packages when they leave a bank that needed to be bailed out by the Government. Instead, he says, the chief executive should “essentially be wiped out”.