Why is Buffett using stock in this acquisition, when he objected to Kraft Foods using its shares in its proposed acquisition of Cadbury Plc., the British candy maker?
Experts say Berkshire’s shares may be closer to full value than Kraft’s, which means Kraft shares would be a less valuable “currency” in a takeover. Also, the proportion of shares Kraft might issue is higher — as much as a 20 percent increase in its shares. Buffett has said Kraft shouldn’t raise its $16.3 billion offer for Cadbury, so his objection is less about the concept of using shares in an acquisition and more about the possibility that issuing shares would raise the dollar value of the Cadbury offer. In addition, Cadbury’s management is rejecting the Kraft offer, while BNSF’s management favors Berkshire’s offer. Buffett’s objection had the effect of driving down Cadbury’s stock price, making the Kraft takeover more likely and cheaper for Kraft. Berkshire is Kraft’s largest shareholder, so the lower the takeover price, the better for Kraft and for Berkshire. Doesn’t Buffett generally prefer cash purchases rather than using Berkshire stock? Yes, but in this case the size of the pu
