Irene Rosenfeld, chief executive officer of Kraft Foods Inc., made known her intent to buy Cadbury PLC back in September. But she failed to keep Warren Buffett, her biggest shareholder, on her side for an open-ended hostile pursuit of the British confectioner.
Ms. Rosenfeld saw her efforts take an unexpected turn Tuesday, when Mr. Buffett's holding company, Berkshire Hathaway Inc., said publicly it would vote against her plan to issue new stock to pay for a Cadbury acquisition and urged other shareholders to vote "No" as well.
According to a Rosenfeld acquaintance, the CEO alerted fellow board members Tuesday morning, just before Berkshire Hathaway, which owns 9.4% of Kraft, released a statement laying out its objection to the share-issue plan, which it fears is a "blank check." Some directors were shocked to hear about the critique from the investing guru, the acquaintance said.
The hostile takeover attempt has shaped up to be the most ambitious—and diciest—move of Ms. Rosenfeld's three and a half years atop the giant U.S. food company. Her position will be tested Feb. 1, when investors vote on her plan to issue stock to fund the deal, currently valued at more than $16 billion.
Ms. Rosenfeld and Mr. Buffett have spoken frequently since she began the Cadbury takeover battle last fall, and she likely will reach out to him to discuss his latest objections, the acquaintance predicted.
Mr. Buffett declined to comment.
Kraft said Ms. Rosenfeld wasn't available for comment, but she released a prepared statement saying, that since September shareholders have "consistently expressed agreement regarding the compelling strategic logic for this combination."
She added, "Our shareholders, including Warren Buffett, have said they'd like to see less stock in the offer. Cadbury shareholders have also expressed interest in seeing less stock, and more cash, in the offer. That's why we announced an additional cash component [Tuesday]. Because we were able to address both company's shareholder concerns, our announcement was well-received by the market."
Kraft Pursues Cadbury
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On Tuesday, Kraft had said it was sweetening the cash portion of its bid—although not the overall total price—with the proceeds from a deal to sell off its frozen-pizza business to Nestlé SA for $3.7 billion.
Kraft shares have risen on Mr. Buffett's statement, which mitigated worries that Kraft might overextend itself to buy Cadbury. (A rival bidder, such as Hershey Corp., could still surface.)
Kraft said it believes its shareholders will approve the issuance of shares needed to complete the transaction. Berkshire Hathaway has said if it decides at some point the offer does not destroy value for Kraft shareholders it will change its vote to "Yes."
Separately, the European Commission on Wednesday said a Kraft purchase of Cadbury wouldn't hurt competition as long as Cadbury's Polish and Romanian chocolate businesses are sold off, a remedy Kraft had proposed.
Tuesday's rebuke by Mr. Buffett was a detour in a relationship that appeared to get off to a good start. Mr. Buffett built up his stake after Ms. Rosenfeld took over as CEO. A former Kraft executive who has worked with Ms. Rosenfeld said Mr. Buffett was unlikely to have taken such a large position in the company if he didn't think highly of her management style. And even before the Cadbury bid, Ms. Rosenfeld and Mr. Buffett long had "a pretty good flow of information" between each other, the acquaintance recollected.
Some other Kraft stockholders share Mr. Buffett's reservations. Kevin Rendino, who oversees the BlackRock Basic Value fund, said in an interview last month that he was taken aback when Kraft unveiled the bid and wouldn't want the company to raise its offer much more.
Mr. Rendino, whose fund held 4.5 million Kraft shares as of October, and other large shareholders have stayed silent since Mr. Buffet's broadside, but their vote by the Feb. 1 deadline will signal the level of their confidence in Ms. Rosenfeld.
"The desire to continue expanding internationally is completely understandable," said Tom Russo, a partner at Gardner Russo & Gardner, a former shareholder of Kraft and current holder of Cadbury and Berkshire Hathaway. "The question is, can she get it done?"
The 56-year-old Ms. Rosenfeld is a longtime Kraft veteran. She left Kraft in 2003 after being passed over for the post of co-CEO and went to PepsiCo Inc.'s Frito Lay unit the next year. Kraft brought her back as CEO in June 2006 to revive its flagging brands.
She quickly changed top management, boosted marketing and spent $7 billion buying Groupe Danone SA's biscuit business.
Recent results at Kraft—the largest packaged food company in the U.S.—have been mixed. The company benefited in the recession, as consumers shunned restaurants and stocked their pantries with Kraft offerings such as Oscar Mayer deli meats and Jell-O. But Kraft in November lowered its outlook for sales growth in 2009, partly because it couldn't keep raising prices, and still needs to build a bigger presence in emerging markets.
Ms. Rosenfeld's position is insulated by the progress she has made shaping up the company. Kraft's 12-member board is dominated by directors who joined since Ms. Rosenfeld took command, and she keeps directors informed with monthly calls even when formal board meetings aren't scheduled, the acquaintance said. Ms. Rosenfeld took over as chairman in 2007.
In a September interview, Ms. Rosenfeld laughed off a question about how the Cadbury bid might affect her career, saying only that she was convinced Kraft had a strong future with or without Cadbury.
Daniel Morgan, a portfolio manager at Synovus Securities, which holds Kraft shares, said, "I don't think her whole career hangs on getting this deal done but its major component of getting Kraft and the stock to faster earnings."
Ms. Rosenfeld has won over difficult shareholders in the past. Two years ago, after activist investor Nelson Peltz built a position in Kraft stock, the company got his fund to agree not to boost its stake beyond certain levels by putting two independent directors endorsed by Mr. Peltz on the board.
Ms. Rosenfeld "handles pressure as well as [anyone] can handle it," said James M. Kilts, a former Kraft executive who has known her since she joined General Foods Corp., its predecessor, in 1981. Mr. Kilts said he promoted her 10 times while they worked together. He is a founding partner of private-equity firm Centerview Partners, whose investment banking arm advises Kraft on Cadbury.
"She thinks things through before she makes a move," Mr. Kilts said. "She's impatient and demanding, but not impulsive."