Commentaries

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from Rolfe Winkler:

Buffett: Shareholder activist

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...

Takeover Panel sets Cadbury clock ticking for Kraft

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KRAFT-CADBURY/So Cadbury has succeeded in convincing the UK’s Takeover Panel — the City of London body which polices M&A — to slap a “put up or shut up” order on Kraft.

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.

Stitz-up at Merrill Lynch?

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Was it a gaffe or was the poor man misquoted? We certainly have two very different accounts of Todd Stitzer’s contribution to a closed conference at Merrill Lynch on 22 September. Maybe it would be better if these sort of briefings just didn’t take place.

According to a Merrill specialist salesman, who jotted down his remarks, Cadbury’s chief executive devoted his entire performance to sharing some thoughts about Kraft’s bid proposal. This was a pretty sensitive subject to pick but, hey, these were serious investors. So he allegedly indicated the possible exit price and the scale of the possible synergies from the deal. The salesman noted that:

Cadbury’s share price says it’s stuck with Kraft

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Here’s a curiosity. Cadbury shares have not moved by more than 10p away from 790 pence since the day after Kraft popped the question with its 10 billion pound cash and shares “proposal.” 

The falling Kraft share price cut the value from 745p to just under 730p, but the Cadbury price has stuck like gum to a shoe. After the spike on the September 7 approach, trading volumes are almost back down to pre-bid levels. The usual suspects among the arbs don’t seem interested. Could this be the bid that died of boredom?

Simon says no thank you to Kraft cheese slices

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It’s not often that you hear an investment banker urging shareholders to consider their duty, unless it’s their duty to vote for his latest money-spinning deal. But Simon Robertson is not your average investment banker, so perhaps we shouldn’t be surprised to see him writing to the FT criticising Kraft’s attempt to buy Cadbury.

Formerly of Kleinwort Benson and Goldman Sachs, Robertson’s list of current directorships makes you want to lie down somewhere quiet: HSBC, Berry Brothers & Rudd, the Royal Opera House, the Eden Project, the Royal Academy Trust – oh, and chairman of Rolls-Royce.

Goodnight Irene, goodnight, love from Roger

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An early draft of Cadbury’s weekend response to the bid approach from Kraft has fallen into my hands.

Dear Irene B Rosenfeld

As you already know, we’ve already spattered your unsolicited takeover proposal with the corporate equivalent of Creme Egg goo, but I thought I’d follow up for the slower members of your board. We really don’t like the idea of being swallowed up by some amorphous conglomerate at a knockdown price simply because nobody wants your extruded Dairylea cheese-style sections anymore.

Kraft moving ahead with financing

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Why let a little rejection stand in your way? Kraft is proceeding with the financing it would need to buy Cadbury, even though the U.K. confectioner spurned the initial offer. It looks like it’s financing plans are  above what had been initially expected, which could mean slightly more new cash could  be added to a revised bid.

Credit Suisse had put the new debt at $6.667 billion. Bloomberg reports it looks more like $8 billion.

A limit to Kraft’s sweet tooth

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Cadbury’s swift rejection of Kraft’s $16.7 billion offer has set off widespread speculation that Kraft will bump up its bid to ensure that it becomes king of candy land.

There is a limit, however, to how much Kraft can pay if it is committed to its investment-grade ratings. The company’s ratings sit two to four notches above speculative, or junk, territory, and every dollop of extra debt to pay for the acquisition would pressure the company’s ratings, making this and future financing much more expensive.

Cadbury’s Kraft sugar rush overdone

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KRAFT-CADBURY/Kraft’s offer for Cadbury got off to a sticky start on Tuesday when the U.S. food group’s stock fell 6 percent, taking some of the buzz out of Cadbury’s bid-fuelled share price.

Kraft’s initial offer has raised expectations of a higher bid, but while it is likely to have to pay more to win, the take-out prices now being touted are stretching the value of the British confectionery group further than a Curly Wurly.

Kraft will need to sweeten Cadbury offer

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CADBURY/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.

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