Warren Wonka the Candyman?

September 18, 2009

Warren Buffett knows sweets. His Berkshire Hathaway is the largest shareholder in Kraft Foods, which made an unsolicited — and rebuffed — $16 billion bid for Cadbury. The Wall Street Journal reported that the trust that holds voting control of Hershey has hired Buffett’s favorite banker, Byron Trott, as it also weighs whether to pursue the British chocolate maker.

Trott, a former Goldman Sachs banker who runs his own firm now, is known for his expertise in candy as well as in advising family- and trust-owned companies. He convinced Buffett to pay $6.5 billion to help finance Mars in its $23 billion takeover of Wrigley last year.

Paritosh Bansal and Jessica Hall report that while Trott’s latest engagement may not have anything to do with Buffett, he may end up helping the billionaire investor. Sources previously told Reuters Hershey is unlikely to make a bid on its own for all of Cadbury. But Hershey may want to pick up pieces of Cadbury, which makes Dairy Milk chocolate, Halls cough drops and Trident gum. This could bode well for Buffett, some investors said.

Cadbury shareholders could get better value and Kraft may not have to pay up for a deal if a third party values some pieces of the British company more than what it is worth in its entirety to Kraft, these experts said.

Buffett has made no secret of his worry that Kraft may overpay for Cadbury. On Wednesday, he told CNBC that Kraft had “a lot to do” to justify the price offered for Cadbury. He also said investors undervalued Kraft’s stock, so it was using a weak currency to pay full value for Cadbury.

While Kraft may think of itself as that kid in the candy shop, Buffett also knows how and when to say no.

“He hates the practice of CEOs overpaying, particularly with their own stock when it is undervalued,” said James Armstrong, president of Henry Armstrong Associates, which manages some $400 million and owns Berkshire stock. “It’s pretty clear that he doesn’t think it’s a very attractive acquisition at this price.”

It’s also worth noting that Buffett told CNBC that Kraft CEO Irene Rosenfeld has his full confidence. That was sweet of him.

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