Thursday, January 21, 2010

Buffett on Kraft-Cadbury Deal

From this CNBC interview on January 20th.  Buffett pulls no punches here.  He doesn't like the deal.

First, he thinks they should not have sold what he thinks is a very good pizza business. In his view, the after tax proceeds (there was little tax basis) was too low relative to the earnings.

Second, he thinks they paid too much for Cadbury.

Basically, he sees it this way. They are selling the earnings of one business for 9 times to buy another at 16 or 17 times.

"...the actual multiple, if you look at the value of the Kraft stock, is more like 16 or 17 and they sold earnings at nine times. So, it's hard to get rich doing that. And I've got a lot of doubts about the deal."

Buffett had a few other comments on Kraft later in the interview...

"...I think Kraft has got a wonderful portfolio of businesses including their pizza business which Nestle now has...And I think Irene has done a good job in operations. I like Irene. I mean, she's been straightforward with me. We just disagree. She thinks it's a good deal. I think it's a bad deal. I think she's a decent person. She could be a trustee under my will. I just don't want her making this particular deal."

He added that he thinks that Kraft is still undervalued just less so after the deal. It wasn't a great deal but Kraft-Cadbury should still have a bright future.

Adam

Long position in KFT

This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.
 
Site Meter