Kraft's bid for Cadbury loses sweetness
Kraft Foods' offer for candy maker Cadbury has hit a roadblock: Warren Buffett's company has voted against the bid. Jeremy Hobson reports this deal may be more evidence that not every merger is a match made in heaven.
Cadbury's Dairy Milk Chocolate bars move down the production line at the Cadbury's Bournville production plant in Birmingham, England. (Christopher Furlong/Getty Images)
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Kai Ryssdal: Kraft's offer for Cadbury has never been quite sweet enough for the British candy maker. The chocolatier's been holding out for a better offer for a couple of months now. But today it became clear that the way Kraft wants to finance its proposed $16.5 billion purchase is a bit too salty for one of Kraft's best-known investors.
Buffett's Berkshire Hathaway voted its 9.4 percent stake in Kraft against the deal today. It said the fact that Kraft was willing to use so much new stock to finance things amounted to a blank check.
Now, usually, it's good to hear about mergers, it's a sign the economy is humming right along. But Marketplace's Jeremy Hobson explains this particular deal may be more evidence that not every merger is a match made in heaven.
JEREMY HOBSON: Kraft has been interested in gobbling up Cadbury for months. S&P Analyst Tom Graves says it's especially tasty because of its international reach.
TOM GRAVES: Cadbury has a major presence, you know, outside of North America, and in particular, I think Kraft is probably attracted to, you know, what Cadbury is doing and can do in the future in certain developing markets such as India.
But every reward has its price. And Berkshire Hathaway very publicly warned today that the proposed deal would dilute the value of stock for existing Kraft shareholders, like Berkshire Hathaway.
Curtis Lyman, senior managing director with High Tower Advisors, says the warning was clear.
CURTIS LYMAN: Look fellas, this needs to be a logical, well-reasoned, thought out, business transaction that will ultimately deliver increasing value to the owners of this company.
Lyman says Warren Buffett, the "Oracle of Omaha," may not have killed the deal altogether.
S&P's Tom Graves says it could still happen if the price is right. And if it can pass the wise acquisition test.
GRAVES: How well are the two companies going to blend together? How similar are the cultures of Kraft and Cadbury, or any two companies that are looking to merge? What kind of cost savings are going to be able to affected by bringing two companies together?
You know, the kinds of questions that the guys at Time Warner wish they had asked about AOL when they had the chance.
In New York, I'm Jeremy Hobson for Marketplace.
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