Friday, January 15, 2010

Ackman’s Pershing Buys $950 Million in Kraft Stock

Billionaire investor William Ackman bought a $950 million stake in Kraft Foods Inc. and urged its Chief Executive Officer Irene Rosenfeld to limit the amount of stock she uses to bid for Cadbury Plc.

Ackman’s Pershing Square Capital Management LP bought at least 32 million shares in Kraft, or 2 percent of the company, and plans to purchase more, Ackman said in an interview today. Pershing’s stake in Kraft is now the firm’s biggest holding.

Pershing thinks “very highly of Irene Rosenfeld and her business plan,” and believes Kraft’s 11 billion-pound ($17.9 billion) stock-and-cash bid for Cadbury makes “tremendous sense,” Ackman said. Kraft risks diminishing the deal’s merits by issuing too much stock to pay for it, he said, echoing a warning by investor Warren Buffett on Jan. 5.

“The more Kraft stock they issue, the less interesting this deal is,” Ackman said. “Fortunately, the seller also prefers cash.”

The Pershing stake will be disclosed in a filing with U.K. regulators on Jan. 18, Ackman said. Kraft, based in Northfield, Illinois, has until Jan. 19 to modify its offer for Uxbridge, England-based Cadbury, the maker of Dairy Milk chocolate.

Buffett’s Berkshire Hathaway Inc., Kraft’s biggest shareholder, said this month that it voted against a plan to issue millions of shares to finance a Cadbury takeover, saying it amounted to a “blank check” to raise the bid.

Kraft advanced 46 cents to $29.58 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has risen 7.8 percent since Berkshire made its statement.

‘Great Confidence’

Ackman’s investment “is a sign of great confidence in our management and our company’s future prospects,” said Michael Mitchell, a Kraft spokesman, in an e-mailed statement.

Ackman said Hershey Co., the Pennsylvania-based chocolate maker that’s controlled by a charitable trust, won’t submit a rival bid because it would imperil its own financial viability.

“I don’t see how the trustees of a charity can put at risk everything that Milton Hershey built to do a leveraged buyout of Cadbury,” he said. Hershey has been weighing a bid and has until Jan. 23 to make a final decision.

Kirk Saville, a Hershey spokesman, declined to comment.

It’s not the first time Ackman has laid a bet on a Cadbury takeover. In early 2007, he bought Cadbury shares on speculation that Kraft would buy the company, he told investors in a letter last year. He sold the stake in the last half of 2008 after concluding that turmoil in the credit markets made a sale less likely, he said in the letter, adding, “we were wrong.”

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