* Buffett opposes Kraft share float for Cadbury bid
* Kraft adds 60p/shr cash to bid in lieu of shares
* Offer takes cash element to 360p/shr from 300p
* Kraft sells pizza unit to Nestle to help fund bid
* Nestle won't bid for Cadbury; Cadbury down 3.2 pct
(Updates share activity)
By Michele Gershberg and David Jones
NEW YORK/LONDON, Jan 5 Warren Buffett came out
against Kraft's KFT.N $16.8 billion hostile offer for
Britain's Cadbury CBRY.L as a threat to shareholder value,
undermining the U.S. foodmaker's attempt to woo investors with
a sweeter bid.
Kraft Chief Executive Irene Rosenfeld had sought to grab
Cadbury investors' attention by raising the cash portion of its
bid on Tuesday. But the rare intervention by Buffett a few
hours later showed she has yet to win over Kraft's largest
shareholder and one of the world's most admired investors, as
well as giving Cadbury new ammunition in its defense.
Buffett's Berkshire Hathaway (BRKa.N) said in a statement
it was voting against Kraft's proposal to float 370 million
shares to fund the Cadbury bid while the company's stock
remains undervalued, calling it a request for a blank check
from shareholders. The company holds 9.4 percent of Kraft.
Berkshire said it could reconsider its vote if convinced
the bid does not destroy shareholder value. Kraft could also
ultimately offer fewer shares. [ID:nBw055997a] [ID:nN051911]
"It's very unusual for Buffett to speak out like this,"
said Justin Fuller, an analyst who follows Berkshire for Midway
Capital Research & Management and publishes the
"Cadbury doesn't want to do a deal at this price and this
resistance from Kraft's largest shareholder hurts the deal's
chances of getting done."
Cadbury Chairman Roger Carr quickly seized on the Berkshire
statement as a sign that Rosenfeld was being squeezed in her
most ambitious gambit yet as CEO.
"Kraft talks about discipline in making their derisory
offer but it's really about management weakness," Carr said in
a statement. "Their offer is limited by powerful Kraft
shareholders restricting the stock content and constrained by
Kraft's rating agencies limiting the cash content."
A source familiar with the situation said Kraft had been in
constant communication with its largest shareholder throughout
the Cadbury bid process, and that Buffett was apprised of
Kraft's position before the Tuesday announcement.
But it appeared that the two sides did not see eye-to-eye,
prompting the Berkshire statement.
"If Buffett votes against something -- that carries a great
deal of weight with other shareholders .... When he says no, no
is what he says and means," said Jerry Bruni, CEO and portfolio
manager of J.V. Bruni and Co, based in Colorado Springs, Co.
Kraft shares were up 3.5 percent Tuesday afternoon while
Cadbury slipped 3.2 percent. Cadbury shares are trading about 3
percent higher than Kraft's current offer, down from a spread
of about 10 percent on Monday.
Factbox explaining new offer [ID:nLDE6040C6]
Reuters Insider segment on deal [ID:nRTV66370]
Breakingviews [ID:nLDE6040NT] [ID:nLDE6041PX]
More Cadbury bid stories [ID:nNL0444683]
NESTLE DEAL FUNDS REVISED KRAFT OFFER
Earlier, Kraft revised its 10.4 billion pound ($16.8
billion) bid, offering shareholders the option of an additional
60 pence cash per share for the maker of Dairy Milk chocolate
and Trident gum.
The extra cash brings the cash portion to 360p and is
funded from a deal whereby Switzerland's Nestle NESN.VX will
buy Kraft's North American frozen pizza business for $3.7
billion. Nestle also ruled itself out of any bid war for
Rosenfeld has stuck to her guns since her initial approach
to Cadbury late last summer, determined not to overpay and
convinced that a rival bidder would not emerge. Some Buffett
watchers believe she could yet bring the Sage of Omaha on
"I don't think he's throwing a monkey wrench in the deal.
This is Warren Buffett 101," said Frank Betz, a principal at
Carret/Zane Capital Management LLP and an owner of Berkshire
shares who has played bridge with Buffett.
A Kraft spokeswoman said the company agrees its shares are
"deeply undervalued," would remain disciplined and would not do
anything that hurts shareholder value. [ID:nWEN7988]
"He is our largest investor and one of the most respected
investors in the world, so of course we take his opinion
seriously," she said of Buffett.
Cadbury shares fell to 779p on Tuesday, compared with
Kraft's cash-and-share bid value of about 758p. Many analysts
and investors still expect Kraft will need to pay 800 pence per
share or above to win over Cadbury.
KRAFT STILL A FRONT-RUNNER
Buffett's surprise announcement overshadowed news that a
key rival to Kraft took itself, and possibly other suitors, out
of the running.
"Nestle's decision effectively leaves Kraft as the
overwhelming front-runner .... Nestle's decision effectively
removes Ferrero and Hershey from the field as competitive
forces," said analyst Jeremy Batstone-Carr at Charles Stanley.
U.S.-based Hershey (HSY.N) and Italy's Ferrero expressed
interest in bidding for Cadbury in November, but they need to
come up with fully financed bids by Jan. 23 to succeed under
British rules. Analysts had expected Nestle might team up with
Hershey, while Ferrero was seen as needing financial help.
Kraft said it would give detailed terms of the alternative
cash offer by a Jan. 19 deadline under British takeover rules.
The U.S. food maker also extended its deadline for Cadbury
shareholders to accept its offer to Feb. 2.
(Additional reporting by Raji Menon, Victoria Howley, Jessica
Hall, Michael Erman, Sam Cage, Jessica Wohl and Aaron Pressman;
Editing by Richard Chang)