Now raising intellectual capital
from Rolfe Winkler:
Shareholder activism is a tactic typical of Carl Icahn, not the Oracle of Omaha. Yet Warren Buffett has issued a press release asking other Kraft shareholders to reject Kraft's proposal to use up to 370 million shares of stock to buy Cadbury.
To state the matter simply, a shareholder voting "yes" today is authorizing a huge transaction without knowing its cost or the means of payment.
What we know with certainty, however, is that Kraft stock, at its current price of $27, is a very expensive "currency" to be used in an acquisition. 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....
Rolfe here. Buffett argues that KFT stock is an "expensive" acquisition currency because he thinks the shares are worth more than $27. He has a special history on this, as I get to below...
Kraft now has until Nov. 9 to decide whether to make a formal offer for the British confectionery group. If it decides to walk away, it is not allowed back for six months.
Kraft’s cash and stock offer for Cadbury may not have passed muster with the target’s board. But while this is not yet game over, it now looks likely that someone will make a snack of the British confectionery group.
Cadbury’s shares have basically tracked the FTSE for years — despite the efforts of Chief Executive Todd Stitzer to liven up the group’s performance, including demerging its U.S. soft drinks.