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Buffett has doubts about Kraft-Cadbury deal

January 20, 2010

Warren Buffett tells CNBC in a live interview on Squawk Box this morning that he has "a lot of doubts" about Kraft's planned purchase of Cadbury and that he "feels poor" in the wake of the deal.

The deal does not need to be approved by shareholders, but "If I had a chance to vote on this, I'd vote no."

Kraft shares are down over two percent in pre-market trading on his comments.

Despite his criticism, Buffett rejected Joe Kernen's suggestion that he show his displeasure by selling Berkshire's stake of over 9 percent in Kraft. That, he says, would be too expensive because Kraft's stock is still "undervalued" but not as undervalued as it was three weeks ago.

Buffett also strongly criticized Kraft's recent sale of a pizza business to Nestle at a price he believes was too low.

But he says Kraft CEO Irene Rosenfeld is a "good operator" and a "good person." He has "cordial relations" with her despite their "difference of opinion."

He thinks "deal momentum" fueled by the investment bankers may have helped push the Kraft-Cadbury deal forward.

Will Buffett become a more activist shareholder in the future? He says no, he's getting it out of his system now.

On the economy, he says Berkshire Hathaway subsidiaries have shed around 25,000 jobs in the last 12 to 18 months, and won't be rehiring "until orders start coming in."

And he thinks "you're not going to have people feeling good until jobs come back," although "a lot of the housing crisis is behind us."

He repeats his belief that its better to hold stocks than cash or bonds.

Buffett also tells us the proposed 50-for-1 stock split of Berkshire Hathaway's Class B shares does not mean he's changing his mind on all his other long-held beliefs.

Buffett had consistently rejected a stock split, but says today that it was a "simple" decision to make because it will facilitate Berkshire's planned acquisition of Berkshire Hathaway.

Buffett says the split "makes sense" and he's confident he has the votes to win shareholder approval of the move.

He still doesn't like the idea of stock splits and issuing new shares, but feels it's necessary for the Burlington deal which will bring a "great long-term asset" to Berkshire. He enjoys the stock moves "as much as I enjoy preparing for a colonoscopy."

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Kfh227 - 11 years ago    Report SPAM
I don't know why there is not more of an outcry to get rid of Irene Rosenfeld. If these stupid moves keep occurring, Rosenfeld will single handedly destroy shareholder value in Kraft.

Budlab - 11 years ago    Report SPAM

She has a reputation for building value on the operations side. However, they may need someone there who knows how to do Buffett-Munger style valuation. Here is my cv:


I estimated the intrinsic value/share of CBY to be around $32 US. Multiply this by 343.5 million shares and we get $10,992,000,000. So, lets say a round $11 billion dollar valuation from me.

I read that Cadbury approved the Kraft Foods takeover of the company, and the final offer was worth $18.9 billion, an improved bid from the previous $17.1 billion proposal. In my view, they are overpaying by around $8 billion.

Just my opinion,


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