In an exclusive interview today on Bloomberg Television, Irene Rosenfeld, CEO of Kraft Foods, strongly defended the company’s acquisition of Cadbury which closed earlier this year. Ms. Rosenfeld believes that investors who remain skeptical regarding the acquisition will eventually be won over as projected synergies appear in financial results. Skeptical investors include Warren Buffett who opposed the acquisition and “felt poorer” based on the terms of the deal. Mr. Buffett has reduced Berkshire Hathaway’s stake in Kraft in the months since the Cadbury acquisition closed. Read this article for excepts and to view the video.
In a 13F Filing with the Securities and Exchange Commission this afternoon, Berkshire reported holding 106.7 million shares of Kraft as of March 31, 2010 compared to nearly 138.3 million shares on December 31, 2009. In addition to the sale of Kraft shares, Berkshire liquidated shares in several other companies and added to positions in three companies. No new positions were initiated during the quarter. Let’s take a brief look at the Kraft sale and other transactions revealed in today’s report.
Most companies on a calendar fiscal year have released proxy statements over the past month. In addition to annual reports, intelligent investors must pay close attention to proxy statements to determine the company’s philosophy on executive compensation. Nearly every compensation committee includes what seems like boilerplate statements regarding aligning the incentives of management and shareholders. However, as we have seen on many occasions, such as the example provided by Kraft’s absurd compensation policies, shareholders must be vigilant when it comes to matching rhetoric with reality. Read this article for more details.
Kraft Foods Inc. released its annual proxy statement yesterday which serves as timely illustration of the faulty logic that compensation committees regularly use when setting executive compensation. As we discussed last month, compensation policies can encourage executives to pursue value destroying mergers. Kraft CEO Irene Rosenfeld earned $26.3 million in total compensation for 2009 with significant components granted due to “exceptional leadership” that resulted in closing the Cadbury acquisition in February. Read this article for more details.
In recent weeks, Kraft’s proposed acquisition of Cadbury has generated a great deal of interest. When an investor with Warren Buffett’s reputation characterizes the transaction as making him “feel poorer”, observers might wonder what could possibly motivate a CEO such as Kraft’s Irene Rosenfeld to pursue such a deal. While we cannot pretend to know Ms. Rosenfeld’s motivations, there are some general observations investors can make regarding the incentive systems and motivations that make value destroying mergers and acquisitions very common. Understanding these motives can help investors avoid situations where managements seem prone to destroying value. Read this article for more details.