Oracle's Kraft call draws candy-stake scrutiny
By JOSH KOSMAN
Last Updated: 10:06 AM, January 7, 2010
Posted: 12:59 AM, January 7, 2010
Billionaire Warren Buffett's decision to weigh in on Kraft's hostile pursuit of Cadbury may land him in hot water with Uncle Sam's antitrust cops.
In voicing his opposition Tuesday to Kraft issuing more shares in order to raise its offer for the British candy maker, sources familiar with the matter said the Oracle of Omaha may have tipped his hand about wanting to protect another candy company in which he has deep ties: Mars.
"To the extent Kraft pays less [for Cadbury], it can be less aggressive in the marketplace" this person said.
Added an antitrust lawyer familiar with the workings of the US Federal Trade Commission: "I think the triggering event [for the FTC to investigate Buffett] could be if his attempt to muck up Kraft's deal was done to protect his position in Mars."
In addition to owning a 9.4 percent stake in Kraft, Buffett also has a large debt and equity position in privately held Mars. In 2008, Buffett's Berkshire Hathaway loaned Mars $4.4 billion to finance its purchase of gum maker Wrigley, and invested another $2.1 billion in Mars in exchange for preferred shares.
A Berkshire Hathaway spokeswoman declined to comment.
Some sources speculated about one reason behind Buffett's rare decision to issue a tersely worded letter in opposition to Kraft selling more shares. They said if Kraft pays too much for Cadbury, the food giant would be under pressure to boost sales, and perhaps lower prices, in order to sell more candy. That, in turn, could potentially hurt Mars' market share.
Currently, Mars, which sells M&Ms and Snickers, has around 15 percent of the global candy market. A Kraft-Cadbury combination would boast an equal share.
The antitrust lawyer said the FTC has had an informal policy of not investigating investors with stakes in companies in the same industry when those interests are below 10 percent.
However, in the case of Kraft, Buffett is the largest shareholder and his action Tuesday is likely to have a significant impact on CEO Irene Rosenfeld and what she does next.
"I think this might cause them to look," the first source said, adding that the FTC's bureau of competition has become more aggressive.
Indeed, under President Obama, regulators have taken a more aggressive stance when it comes to antitrust issues, going as far as putting Google through its paces on a number of fronts, despite its employees' deep-pocketed support of his presidential campaign.
If the FTC were to take action, it would likely come before a Jan. 19 deadline for Kraft to submit a bid for Cadbury.
The first step would be asking Berkshire Hathaway for recent letters and documents related to correspondence with Mars and Kraft. If that was not satisfactory, the FTC could issue a subpoena.
Meanwhile, there were reports yesterday that Cadbury directors had approached members of Hershey's board about the US chocolate company submitting a rival bid. Cadbury execs have said publicly that they see Hershey as a better fit than Kraft.
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