Warren Buffett's public rebuff of Kraft Foods' Cadbury offer may have been mostly a strategic move aimed at helping Kraft's management pull off a reasonable deal with the British confectioner company or at the very least avoid overpaying.
That's an interpretation offered in an article from today's Wall Street Journal.
Berkshire Hathaway put out a news release yesterday announcing that it had voted down Kraft's proposal to issue up to 370 million shares to finance the nearly $17 billion takeover of Cadbury. Berkshire is Kraft's largest shareholder, with a nearly 10 percent stake worth about $4 billion.
The news release stated that Kraft was proposing to finance the deal with too high a percentage of stock, which Berkshire considers to be undervalued.
The WSJ points out that part of Buffett's intent may have been to help Kraft on two fronts:
First, it would show Cadbury investors that Kraft's offer is fair. That would reduce expectations for Cadbury shareholders of getting a better offer and perhaps move the stock price closer in line to the Kraft offer.
Second, the statement would remind people that Kraft's stock was undervalued, which might help push up the price and therefore make the bid for Cadbury more lucrative. Berkshire's message reminded investors that Kraft bought back its own stock at $33 a share in 2007.
The WSJ points out today that Buffett is a "decades-long student of the takeover game, knowing when to deploy threats or charm to advance the interests of the $155 billion Berkshire conglomerate."
If the WSJ is correct in its interpretation, Buffett's statement seemed to work yesterday (the statement wasn't signed by Buffett but was almost certainly his handiwork).
Kraft's stock jumped 5 percent yesterday to $28.77 (it was up to $29.06 as of this writing). Because a high percentage of Kraft's Cadbury offer is in stock, that bumped up the offer by $500 million. Meanwhile Cadbury's stock fell more than 3 percent yesterday.
The WSJ argument seems to have a lot of merit. As Kraft's largest shareholder, Berkshire's interests are to help Kraft get the best deal it can, or prevent the company from going overboard with its offer. Further, Buffett rarely criticizes his business partners publicly, hence it makes sense that yesterday's statement would be largely intended to help Kraft CEO Irene Rosenfeld rather than rebuke her.
That's an interpretation offered in an article from today's Wall Street Journal.
Berkshire Hathaway put out a news release yesterday announcing that it had voted down Kraft's proposal to issue up to 370 million shares to finance the nearly $17 billion takeover of Cadbury. Berkshire is Kraft's largest shareholder, with a nearly 10 percent stake worth about $4 billion.
The news release stated that Kraft was proposing to finance the deal with too high a percentage of stock, which Berkshire considers to be undervalued.
The WSJ points out that part of Buffett's intent may have been to help Kraft on two fronts:
First, it would show Cadbury investors that Kraft's offer is fair. That would reduce expectations for Cadbury shareholders of getting a better offer and perhaps move the stock price closer in line to the Kraft offer.
Second, the statement would remind people that Kraft's stock was undervalued, which might help push up the price and therefore make the bid for Cadbury more lucrative. Berkshire's message reminded investors that Kraft bought back its own stock at $33 a share in 2007.
The WSJ points out today that Buffett is a "decades-long student of the takeover game, knowing when to deploy threats or charm to advance the interests of the $155 billion Berkshire conglomerate."
If the WSJ is correct in its interpretation, Buffett's statement seemed to work yesterday (the statement wasn't signed by Buffett but was almost certainly his handiwork).
Kraft's stock jumped 5 percent yesterday to $28.77 (it was up to $29.06 as of this writing). Because a high percentage of Kraft's Cadbury offer is in stock, that bumped up the offer by $500 million. Meanwhile Cadbury's stock fell more than 3 percent yesterday.
The WSJ argument seems to have a lot of merit. As Kraft's largest shareholder, Berkshire's interests are to help Kraft get the best deal it can, or prevent the company from going overboard with its offer. Further, Buffett rarely criticizes his business partners publicly, hence it makes sense that yesterday's statement would be largely intended to help Kraft CEO Irene Rosenfeld rather than rebuke her.
