Blog: Dean BestKraft's sweetened Cadbury offer sours Buffett

Dean Best | 5 January 2010

While the UK freezes in the most prolonged spell of cold weather for 29 years, the Cadbury takeover saga showed signs of heating up today (5 January).

Kraft Foods revised its much-derided takeover bid for the UK confectioner after raising funds through the sale of its North American pizza business to Nestle.

Kraft's initial approach, made in September and formalised in December, has drawn criticism from Cadbury and industry watchers; the prevailing view is that the US food giant needs to up its offer.

However, those Cadbury investors hoping for a big pile of pennies from Kraft are surely disappointed.

Kraft does plan to up the amount of cash it would give Cadbury shareholders but, despite its US$3.7bn pizza deal with Nestle, the US group's revised offer is unlikely to meet the demands of long-term investors in the Dairy Milk maker - let alone a highly sceptical board.

Scepticism over Kraft's intentions have also reached its own share roster. Key investor Berkshire Hathaway, the investment vehicle led by US billionaire Warren Buffett, issued a surprise warning to Kraft this afternoon over the company's plans.

The investor is worried about the use of new Kraft shares to fund a Cadbury takeover and argued that Kraft stock is a "very expensive currency" to be used in an acquisition.

We await Kraft's response - but Berkshire Hathaway's concern over the US food group's strategy is a blow for the Milka and Cote d'Or chocolate maker's chairman and CEO Irene Rosenfeld and her ambitions to buy Cadbury.

Cadbury's stock, meanwhile, has become less expensive in the wake of Kraft's moves today - and also the news that Nestle has decided not to throw its hat in the ring for the business.

Cadbury's shares have had a bit of a rollercoaster day, starting at 787.8p, risng to 794p, but slumping to 764.4p after Berkshire Hathaway's comments.

At 15:24 GMT, Cadbury shares stood at 778p, down over 3% on the day, as the market digested Kraft's revised offer, Nestle going cold and Berkshire Hathaway's objections.

Cadbury shareholders keen to sell will be hoping for some warmth from Hershey, Pennsylvania or Turin - the Italian home of Ferrero - in the days ahead.

However, with uncertainty surrounding the prospect of any move from Hershey and Ferrero and Berkshire and Buffett's disquiet over Kraft's bid - the only one on the table - could mean that the odds have shifted, ever so slightly, towards Cadbury staying independent.


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