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Berkshire opposes Kraft share issue in Cadbury takeover

Published:Wednesday | January 6, 2010 | 12:00 AM

Billionaire Warren Buffett's Berkshire Hathaway Inc voted against Kraft Inc's proposal to issue 370 million shares to finance its bid for British candymaker Cadbury PLC, saying the plan gives Kraft management a "blank cheque".

The battle for Cadbury PLC was thrown further into doubt by Berkshire's vote against Kraft's share issue to finance its £10.3 billion (US$16.5 billion) bid, saying it was worried Kraft would raise the bid even higher.

Kraft earlier Tuesday increased the cash part of its offer, after agreeing to sell its North American pizza business to Nestlé for US$3.7 billion.

Nestlé also said it wouldn't be making its own offer for Cadbury, as some analyst had speculated.

That leaves Kraft the sole bidder for now, though the British maker of Dairy Milk chocolate and Dentyne gum has said it has received expressions of interest from The Hershey Company of the United States and Italy's Ferrero International SA.

Cadbury dismissed Kraft's plan to use the money raised from selling brands such as Tombstone and Jack's to increase the proportion of cash in its offer as "tinkering".

Shares in the British maker of Dairy Milk chocolate and Dentyne gum were down 3.7 per cent at £7.75, after briefly diving to £7.644 following Berkshire Hathaway's announcement.

Berkshire Hathaway, which holds 9.4 per cent of Kraft's stock, said that the share issue would give Kraft "a blank cheque allowing it to change its offer to Cadbury in any way it wishes".

"And we worry very much that, indeed, there will be an additional change from the revision announced this morning," it added. "To state the matter simply, a shareholder voting 'yes' today is authorising a huge transaction without knowing its cost or the means of payment."

Kraft, based in Northfield, Illinois, could not immediately be reached for comment on Berkshire Hathaway's move.

More cash

Kraft, whose brands include Philadelphia cream cheese and Oreo cookies, earlier said its change to the offer reflected calls by some Cadbury shareholders to have more of the offer in cash and "to be more sparing in its use of undervalued Kraft Foods shares as currency for the offer."

"Kraft Foods continues to believe that its share price is depressed as a consequence of a number of short-term factors which it believes will dissipate once the uncertainty surrounding its offer for Cadbury is resolved," the company said in a statement.

Kraft said Tuesday it will use an amount equivalent to the net proceeds from the pizza sale, which it estimates to be 60 pence per Cadbury share, to fund a partial cash alternative to its offer.

It also extended the deadline for shareholders to accept its bid until February 2 - the last day in the 60-day timetable set by the UK Takeover Panel.

It has until January 19 to revise its offer further.

Berkshire said it will vote to issue shares, only if it does not think the final offer hurts value for Kraft shareholders.

Cadbury's share price is still well above the original £7.42-pence value of Kraft's offer - £3 in cash and 0.2589 Kraft shares for each Cadbury share - reflecting the odds that changing the cash component is unlikely to be enough to win over shareholders who are seeking a higher overall price.

- AP