With the deadline for a final bid looming, US food giant Kraft's four-month pursuit of Cadbury took an unexpected turn this week. Kraft announced that it would increase the cash component of its cash and share £10.4bn bid.
Then Warren Buffett, Kraft's biggest shareholder, with a 9.4% stake, waded into the battle with a rare public rebuke for Kraft. His investment vehicle Berkshire Hathaway said it opposed Kraft's plan to issue up to 370 million new shares to fund the takeover. Berkshire thinks Kraft's stock is undervalued and worries that the share issuance plan amounts to a "blank cheque" to give part of the company away on the cheap.
What the commentators said
How "embarrassing" for Kraft, said Robert Peston on BBC.co.uk. Pointing out that it spent $3.6bn buying back its own shares at $33 in 2007, presumably because it thought they were undervalued, and now wants to issue more at just $27, suggests that Berkshire has little respect for "the judgement of management".
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"This smells fishy," said Nils Prately in The Guardian. All he really did was reiterate a warning to Rosenfeld not to overpay. Note too that he said Berkshire could yet back the share issue if Kraft's final offer, due by 19 January, didn't destroy value for Kraft shareholders. All this means that this was really an attempt to talk up Kraft's share price and dampen Cadbury's expectations.
Kraft's shares rose as a result of the impression that Buffett isn't keen on the deal, on the assumption that the risks of it overpaying to win Cadbury have dwindled, said Damian Reece in The Daily Telegraph. Cadbury's fell because a bid premium is less likely. That's exactly what Rosenfeld and Buffett, who "has never questioned the industrial logic" of the deal, want. The value of Kraft's currency rises and Cadbury's falls, making Cadbury more affordable with fewer shares. None of which changes the fact that Kraft's offer is still "far too low".
