Kraft’s largest shareholder Berkshire Hathaway, run by billionaire investor Warren Buffett, has voted against the issuance of up to 370m shares to acquire Cadbury, it said on Tuesday.
The holding company owns 138m Kraft shares, or 9.4 percent of Kraft’s stock, but Buffett indicated that the company has voted ‘no’ to the issuance of shares in the $16bn cash-and-stock offer.
“The share-issuance proposal, if enacted, will give Kraft a blank check allowing it to change its offer to Cadbury – in any way it wishes – from the transaction presented to shareholders in the proxy statement,” he said in the statement.
Buffett’s announcement of the company’s position came the same day that Kraft announced the sale of its North American pizza business to Nestlé in order to increase the cash component of its offer for the British confectioner, in exchange for part of the share component. Kraft said it made the decision due to calls from Cadbury shareholders to increase the cash element, as well as calls from its own shareholders – like Buffett – “to be more sparing in its use of undervalued Kraft Foods shares as currency for the offer.”
Kraft shareholders still have until February 1 to vote on whether they want up to 370m common shares to be included in the deal.
Buffett said he believes that the Kraft share price is undervalued at present.
“Kraft stock, at its current price of $27, is a very expensive "currency" to be used in an acquisition,” he said. “In 2007, in fact, Kraft spent $3.6 billion to repurchase shares at about $33 per share, presumably because the directors and management thought the shares to be worth more.”
However, he added that if Kraft’s final offer for Cadbury, due on January 19, “does not destroy value for Kraft shareholders”, Berkshire Hathaway would change its vote to a ‘yes’.