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Times Newspaper: "Kraft chief is Warren Buffett's puppet"


lance2210
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This is from today's Times of London Newspaper: http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article6982290.ece

 

IMHO: I would like Cadbury to remain independent and they make better chocolate than Kraft really. But it's up to the board of directors and shareholders to decide what price, their slice of ownership is really worth.

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Guest dealraker

I have held stock in Cadbury for several years now and have recently bought Kraft- based on the same math as when I took on a little CBY.  Just well below market valuation.  But in any event I have a sneaky suspicion that when this fluff is finished that the Cadbury shareholders are going to realize it was proabably in their best interest to sell.  Generally food/beverage mergers do work and I think CBY managment isn't nearly as good as they think they are- and this ego battle I think is largely one from Cadbury's managment.  I think the last thing on their mind is outside passive minority shareholder value. 

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IMO this deal is negative near term (1-3 years) for Kraft in every aspect. It is dilutive to EPS. Cadbury margins are lower than Kraft, so forget about trading at a higher P/E because chocolate and gum are more sexy. It would also hurt Kraft's debt ratios. I applaud Buffett for his efforts.

 

To make this deal work, you need massive cost cutting and/or some growth from Cadbury. It is true that a bigger Kraft will gain in efficiency of scale with manufacturing/distribution/shelf space/marketing, but this usually takes time. Cadbury may also help Kraft enter India, but this is a big if.

 

Something that caught my eye and maybe an opportunity for the deal to work was the number of employees per $ of sales. Kraft has 100,000 employees for $40 billion in annual sales while Cadbury has 45,000 employees for just under $10 billion. Any insight on the big difference?

 

On a somewhat related topic, does any one of you hold Dr. Pepper Snapple Group Inc.? It trades around 12 times earnings, has good margins (better than CBY and KFT) and has recently agreed with Pepsico to receive $900 million for the change of control of PEP bottlers. After taxes, this will be used to repay some debt which will help earnings. Moreover, they recently introduced a dividend and a share buy-back program. This company appears too cheap on its own merits and now being a pure play like Cadbury it could be a target.

 

Cardboard 

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I think dps is a nice play, but just sold.  Took some gains.  But this is still reasonable on a FCf basis.

 

Wrote some 25 puts to see if I can get back in.

 

Somewhat limited international growth and oppotunity, but a nice cash cow where management has been wise to pay off a ton of debt from the spin.

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This reminds me too much of the whole Jerry Yang incident witht the Yahoo/Microsoft deal.  Yang looks stupid now as Google and Bing are eating up their market share.  Cadbury's board is silly in not working with this deal and Kraft would be silly to pay up.  Cheers!

 

 

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Sanjeev, well said!

 

Yahoo! is a goner, it is only a matter of time. Their services have degraded significantly ever since Carol Bartz took over. People who used to use Yahoo! services are migrating in droves to Google/Bing. I myself have switched over from using Yahoo! mail to GMail.

 

 

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When you look at Cadbury's net profit, it is pretty tiny compared to the global growth and profit powerhouse that their press releases are portraying it to be.  Really it is Hershey or worse.  To me it was fully priced before the kraft bid. I think it would be a good buy for kraft at disciplined pricing, because there has to be alot of rationalization of costs that could be done and some sales synergies with kraft infrastructure.

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