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Will Cadbury remain independent?

Robert Peston | 17:14 UK time, Tuesday, 5 January 2010

Kraft's plans to buy Cadbury are in jeopardy, following the decision of Berkshire Hathaway to vote against its plan to issue 370m new shares to pay for the confectionery company.

Berkshire, founded by Warren Buffett, owns 9.4 per cent of Kraft. It is also probably the most respected investor in the world.

So it is embarrassing for Kraft that Berkshire will not authorise the transaction.

Berkshire has two concerns. First it says that Kraft should not be issuing shares at the current price of $27, because it sees this as a "very expensive 'currency'".

Second it is concerned that if it were to authorise the issue of the shares, it would in effect be authorising "a huge transaction without knowing its cost or the means of payment".

There is a paradox here of course.

Berkshire fears that Kraft would be paying too much for Cadbury.

Whereas Cadbury's board fears that the offer from Kraft is inadequate.

Roger Carr, chairman of Cadbury, says: "In essence Kraft's offer is limited by powerful Kraft shareholders restricting what they can offer in stock and is constrained by Kraft's rating agency limiting what they can offer in cash.

The so-called discipline of Kraft [in not wanting to pay more for Cadbury] is a smokescreen to justify an attempt to steal the Cadbury from its shareholders".


Unless you are a conspiracy theorist who believes that Berkshire is in cahoots with Kraft's management to secure Cadbury at a knockdown price, you'd have to assume that the game is up - and that Cadbury will remain independent.

But would "friends" of Kraft's board point out - as Berkshire has done - that this company spent $3.6bn on its own stock at $33 per share in 2007, presumably on the basis that $33 was too cheap for the stock, and now wants to issue shares when they are even cheaper.

These are the observations of a shareholder who doesn't appear to have huge respect for the judgement of management.

It is therefore reasonable to assume that Berkshire really doesn't like the look of the Cadbury takeover.

So Kraft now has till January 19 to persuade Berkshire that its price for Cadbury represents very good value and to persuade Cadbury shareholders that they are getting a fabulous price.

Those two ambitions don't look altogether consistent.

In other words, there must be a pretty good chance that Cadbury - against prevailing opinion - will remain independent.

That said, I am not sure the penny has dropped in the market place, because if it had surely Cadbury's share price would have fallen by more than today's 3 per cent.


  • Comment number 1.

    Are you saying that you have dumped both Kraft and Cadbury from your Portfolio?

  • Comment number 2.


    You would have to be a fruit and nut case not to see that Krafty Buffett is in cahoots with the board of directors - they're just trying to get Cadbury on the cheap. Let's hope they stay independent and keep all those hard working, salt of the earth brummies in employment.Cadbury and Bournville are national institutions and should be preserved as such.

    Nuts to Buffett!

  • Comment number 3.

    Sounds like good news for the UK then, if the yanks dont have to cash why on earth would Cadbury wants its new owners to saddle it with massive debt?

    Glad to see companies no longer being able to borrow huge sums to enable to try & decimate the competition. It would have been a bad deal for consumers long run as costs would undoubtably risen & staff lay offs would have been inevitable.

  • Comment number 4. where is the article about the `Financial chill sweeping football`?

  • Comment number 5.

    Bit of a come-down, isn't it Robert ? Not so long ago you were bringing the economy to its knees with exclusives about troubled banks and now you're reporting about this. Caledonian Comment

  • Comment number 6.

    Any one want to start a book on how long the current Kraft management will still be in their jobs?

    Nevermind the conspiracy theories, looks like the Sage of Omaha has simply said this is not a deal for Kraft to do. Other companies could come in and make offers or alternatively Cadbury could simply stay independent

  • Comment number 7.

    Just a point of order if I may. Berkshire Hathaway was not founded by Warren Buffet. Berkshire Hathaway came about from a merger of two textile firms in 1955. Both had histories dating back into the 19th century. Buffet started buying shares in the company in 1962, some 7 years later.


  • Comment number 8.

    There is already uncertainty over whether Hershey or Ferrero have the resources to table a counter-bid.

    Now, with apparent internal unease over Kraft's offer - the only one on the table - the odds have shifted, ever so slightly, towards Cadbury staying independent.

  • Comment number 9.

    This is apparently a link to football's financial crisis and when I clicked on it I find myself reading about Cream eggs!

  • Comment number 10.

    I clicked on this link from the football page, what the hell has Chocolate got to with football ?

  • Comment number 11.

    hypothetical scenario. When you turn off the telly does the news stop? So if you turn the telly off for a good few years what happens when you turn it on again?

  • Comment number 12.

    #3. At 5: sirHellsBells wrote:
    Sounds like good news for the UK then, if the yanks dont have to cash why on earth would Cadbury wants its new owners to saddle it with massive debt?


    Are you saying this will not be a 'leveraged buyout'?

  • Comment number 13.

    4, 9, 10
    Maybe Kraft are going to take over Everton?!

  • Comment number 14.

    sorry why is this in the sports section?

  • Comment number 15.

    Anyone looking for the football article - it is the Can Man Utd Spend link below under 'more from this blog'. BBC have obviously not changed the link when the article changed...

  • Comment number 16.

    re: 13
    Sorry, if Toffees was too obtuse.

    Maybe, as it's Berkshire Hathaway, I should have said Reading FC?!
    (now the Royals, but previous nickname was the Biscuitmen - after the Huntley & Palmers factory).

  • Comment number 17.

    So have Kraft bought out Watford or cadbury bought out Wigan ---where's the football comment --this is on the football link???!!!

  • Comment number 18.

    Buffett is no fool. To ignores him is a making a bold move.The deal is dead folks!

  • Comment number 19.

    Robert Peston:

    I have a feeling, that Cadbury will not remain independent that, much longer......

    -Dennis Junior

  • Comment number 20.

    I think it would be a tragedy if Cadbury shareholders succumed to pressure from Kraft in their bid to take over. There is very little industry left in this country that is anything to be proud of, why hand it over to the Americans?

  • Comment number 21.

    Hmm? so thats why watford almost went into administration. It's all because warren buffet isn't that keen on chocolate. Maybe if he was a fan of cadburys cream eggs then they would be the new man city..... Read between the lines people, this is a revelation, well almost!

    Never the less, good article! Now where's the one about footy?

  • Comment number 22.

    Oh Robert,

    Some of the football comments are hilarious, such brilliant humour.

    Haway the lads lol.

  • Comment number 23.

    Don't go footie fans, you fit in real well, around here.

    pssssssst I've got some NUFC shares tucked away somewhere - the paper type that were issued before that Ashley man took over. Are they worth anything?

    Cheers !

  • Comment number 24.

    It's the milk ...stupid!

    Kraft wouldn't find it easy to pull Cadbury's out of the UK and sack everyone and the 'penny's dropped' with the 'financier'

    Go after Man Utd instead - then the players can all run around with 'Cadbury's' on their shirts!

  • Comment number 25.

    Your NUFC shares are worth as much as a governments promise, Ashley took them off the stock market when he purchased the club.

    Regarding a leveraged buy out, yes that would be a possibility but my point was that the ability to raise the capital in harder in 2010 than it would have been in 2007, which is good news for Cadbury's.

    The company makes nice chocolate, employs a large number of people in this country, pays its taxes & makes a profit, just because someone thinks buy saddling themselves with $10 billion worth of debt to buy a company is a good idea doesnt mean their shareholders or banks will.

    As I say in the world of profit & money are kings then it might happen but my hope for this recession/depression is people will realise that chasing the money isnt always the right path.

    It would be devastating to lose another British business when we are already facing an uncertain future.

  • Comment number 26.

    It sounds to me like Warren Buffet has no real interest in Cadbury but does want to increase his stake in Kraft as minimal cost, if he can sow public dissent in an unpopular takeover (whilst in the background seeming to push the Kraft management in this direction) then Kraft shares will fall and he can scoop up more for less and put his own people in charge.
    If this merger doesn't go through then the current management will look like dummies and Buffet can move in and strip the assets, move production to the far east and sell it on as a hollowed out shell to some unsuspecting investors.
    I'd mark Kraft as Hold then Buy if shares drop.

    As for Cadbury, well after last years fiasco over witholding consumer information as to the dodginess or otherwise of their leading products...I would have sold long ago.

    Management, rubbish or what ?

  • Comment number 27.

    Daylight robbery then ?

    Sounds familiar.

  • Comment number 28.

    Oh dear... This will upset the Great Leader.. He wants to completely eliminate UK industrial ownership so his chums in the City won't be distracted from creating new bubbles.

  • Comment number 29.

    Re: 28
    The great Leader - Roman Abramovich you mean?
    Eliminate UK ownership? Already happened Guv - no British managers at the top and its all foreign money!
    City? Man City? Surely not Lincoln?!!!!
    New Bubbles - maybe he means West Ham?!!
    I dunno - makes no sense to me.....

  • Comment number 30.

    I think what Berkshire Hathaway is expressing frustration about is that they don't see enough profit for them from the deal. The Kraft share price was $33 (during the buyback) and now at $27 means that any current Berkshire Hathaway share stake in Kraft has declined in real terms and what is Kraft going to do about it for their benefit? Maybe this major investor bought Kraft shares at the wrong time believing the spin at that time (tee hee)!

    If there was a cash alternative Berkshire Hathaway (as a shareholder in Cadbury)and those others that don't have faith in the Kraft board's (ability to increase their own share price) could take the cash. So it is code for put a cash option on the table as we have no confidence in the Kraft board. If the banks won't back the deal why should the shareholders?

  • Comment number 31.

    Kraft were only showing that they are still big to their own shareholders. It was more about ego than business.
    And Warren Buffet seems to agree with me.
    His normal buying practice is to buy low a trading company they build slowly.
    The Hershey deal is more about putting off this type of asset buying so both firms still trade.

    And in some ways Kraft did not know what it was trying to buy.

  • Comment number 32.

    Since Cadbury plans to close its Keynsham factory and move production to Poland, who cares?

    If it has no loyalty to the work force that has enriched the company over so many years, why should we care if it's taken over?

  • Comment number 33.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 34.

    Saying that bankers pay tax doesn't wash with me.

    For decades, the F.I.R.E. sector, Finance, Insurance, Real Estate has been sucking increasing energy, wealth and vigour from the 'real' economy, so the paltry (relative) tax that banks and their employees pay back, is simply an insulting token.

    Shunting money around by speculating and gambling, selling futures on commodities so that nations go hungry, playing with currencies, ruining stock in viable companies to make a quick (huge) buck is not wealth creation, but destruction, plain and simple.

    I am ashamed of a culture that toadies to these bloodsuckers.


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