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Wednesday, September 30, 2009

NORTH COUNTY TIMES: Utility agrees to terms removing Klamath dams

JEFF BARNARD - Associated Press | Posted: Tuesday, September 29, 2009 10:05 pm |

MEDFORD, Ore. ---- The utility that owns four hydroelectric dams on the Klamath River has agreed to terms for their removal, a key milestone in efforts to restore what was once the third-biggest salmon run on the West Coast and end decades of battles over scarce water.

PacifiCorp, the states of California and Oregon, American Indian tribes, federal agencies, irrigators and conservation groups announced the draft agreement Wednesday. Signing is expected by the end of the year.

Actual removal is not scheduled to start until 2020, and depends on full funding of the removal, a determination by the U.S. Secretary of Interior that it will actually help salmon and is in the public interest, and authorization from Congress.

"This agreement marks the beginning of a new chapter for the Klamath River and for the communities whose health and way of life depend on it," Interior Secretary Ken Salazar said in a statement. "Hats off to all the stakeholders who have worked so hard to find common ground on one of the most challenging water issues of our time."

PacifiCorp will not bear the estimated $450 million cost of removing the dams. Oregon has approved $180 million in surcharges on state ratepayers. An additional $250 million depends on California approving general obligation bonds.

"If the federal government and the states of California and Oregon sign onto this negotiated final settlement, then we will join with them and all the other stakeholder groups that may choose to sign the agreement," PacifiCorp Chairman and CEO Greg Abel said in a statement.

The utility serves 1.6 million customers in Oregon, California, Washington, Idaho, Utah and Wyoming, and is owned by MidAmerican Energy Holdings Co., a unit of Warren Buffett's Omaha, Neb.-based Berkshire Hathaway Inc.

"When the Klamath dams come down, it will be the biggest dam removal project the world has ever seen," Steve Rothert, California director for the conservation groups American Rivers, said in a statement. "We will be able to watch on a grand scale as a river comes back to life."

Water wars have long simmered in the Klamath Basin, where the first of the dams and a federal irrigation project built in the early 20th century turned the natural water distribution upside down, draining marshes and lakes and tapping rivers for electricity to put water on dry farmland that grows potatoes, horseradish, grain, alfalfa and cattle.

A drought in 2001 forced a shutoff of irrigation water to sustain threatened and endangered fish. When the irrigation was restored the next year, tens of thousands of salmon died trying to spawn in the Klamath River, which was too low and too warm to sustain them.

Besides blocking salmon from the upper basin, the dams raise water temperatures to levels unhealthy for fish. Their reservoirs produce toxic algae. The fish are beset by parasites.

The four dams ---- Copco J.P. Doyle, Copco 1, Copco 2 and Iron Gate ---- together produce enough electricity for 70,000 customers.

Pressure has been building since PacifiCorp applied for a new 50-year federal operating license in 2004 and made no provision for fish passage, which stops at Iron Gate near the Oregon-California border.

California and Oregon's governors pressed for dam removal after West Coast commercial salmon fisheries collapsed in 2006 because of declines in Klamath River returns, triggering a disaster declaration.

Federal biologists mandated that fish ladders and other improvements costing $300 million be added to the dams before a federal operating license could be renewed.

California water authorities have been taking a hard look at the dams' role in toxic algae plaguing the river, and river advocates have sued PacifiCorp to fix the algae problem.

Final approval of the dam removal agreement is key to authorization of a separate agreement to spend $1 billion over the next decade on environmental restoration in the Klamath Basin.

Some conservation groups were not pleased that dam removal continues to be linked to letting farming continue on the Lower Klamath and Tule Lake national wildlife refuges, preventing restoration of wetlands that would contribute to better water quality, and guaranteed irrigation levels for farmers in the upper basin.

"It's fantastic that we have attention on the Klamath Basin and might get a shot at dam removal," said Steve Pedery, conservation director of Oregon Wild in Portland. "But we really can't afford to allow dam removal be linked to making other environmental problems in the basin worse."

Some details remain unresolved. It is not certain, for example, whether the federal government or some other entity will take possession of the dams to remove them.

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BLOOMBERG: Berkshire, AIG Benefit From Absence of Atlantic Hurricanes

By Jamie McGee

Sept. 30 (Bloomberg) -- Insurers including Warren Buffett’sBerkshire Hathaway Inc. and American International Group Inc. benefited from the absence of third-quarter storms this year after paying $12.5 billion in claims on Hurricane Ike in 2008.

The hurricane season has yielded a single U.S. landfall, Tropical Storm Claudette, which struck Florida last month. By this time in 2008, Hurricane Dolly had hit Texas, Gustav came ashore in Louisiana, Tropical Storm Hanna swiped the Carolinas and Ike lashed nine states, killing more than 100 people.

The calmer quarter will boost results for insurers after the recession eroded the value of their holdings and caused customers to reduce spending. The storms last year contributed to the industry’s $9.9 billion net loss in the third quarter, according to Insurance Services Office Inc.

“The insurance companies are going to have just phenomenally good earnings this quarter because of the lack of hurricanes,” said Michael Paisan, an analyst at Stifel Nicolaus & Co. Also, he said, “you are going to get some boost from the financial markets” as insurers’ portfolios recover.

The Atlantic hurricane season lasts from June 1 to Nov. 30, with the greatest activity usually in September, the National Oceanic and Atmospheric Administration said on its Web site. The season has so far defied NOAA’s May prediction of four to seven hurricanes. Bill and Fred have been the only hurricanes to form in the Atlantic this year. Both missed the U.S.

“The last time we had a year that quiet was in 1997,” said Jeff Masters, director of meteorology at Weather Underground Inc., an Internet weather service based in Ann Arbor, Michigan. “As far as damage goes, you can pretty much say coastal erosion from Bill is all we’ve had.”

Wildfires, Tornadoes

The 2008 hurricane season was the most expensive since 2005, when Katrina, Wilma and Rita contributed to more than $60 billion in U.S. catastrophe claims, according to ISO.

The industry also paid out last year after wildfires in California and a record number of tornadoes in the first six months. This year, about 1,057 tornadoes have struck the U.S., down about 34 percent from the first nine months of 2008, according to preliminary data from the National Weather Service. This year’s tally may drop further when the service investigates storm data and compiles official statistics.

Paisan said companies with the greatest reliance on property coverage will benefit the most from the decline in disasters, including Allstate Corp., Travelers Cos., and Warren, New Jersey-based Chubb Corp.

Allstate, the largest publicly traded home insurer in the U.S., had $1.82 billion in catastrophe losses in last year’s the third quarter. Travelers, the insurer added to the Dow Jones Industrial Average, reported $1.04 billion in catastrophe costs in the same period.

Returning to Profitability

Allstate is expected to post a third quarter operating profit of 88 cents a share, compared with a loss of 35 cents in the same period a year earlier, according to the average estimate of 14 analysts surveyed by Bloomberg. Operating results exclude some investment gains and losses. The Northbrook, Illinois-based insurer has declined 5.6 percent this year through yesterday in New York Stock Exchange composite trading.

Allstate “is among the most levered to the financial markets and exposed to weather-related losses,” Paul Newsome, an analyst at Sandler O’Neill & Partners, said in a Sept. 28 note to clients. “The third quarter is shaping up to be a very good quarter for investment results and a good quarter for weather-related losses.”

Travelers is expected to report a profit of $1.20 a share, up 65 cents from the same period last year, according to the average estimate of 15 analysts. The New York-based insurer’s shares gained 8.3 percent this year.

AIG, Berkshire

AIG, which was rescued by the U.S. last year with a bailout that swelled to $182.5 billion, is expected to report operating earnings of 24 cents a share, compared with a loss of $68.40 dollars a share in the year-earlier period, according to the average estimate of three analysts surveyed by Bloomberg. AIG, also one of the world’s largest life insurers, has gained 44 percent since Dec. 31.

Berkshire, which typically gets about half its profit from its insurance units, is expected to report operating earnings of $1,176 a share, down $159 from the same period last year, according to the average of two analysts’ estimates. Berkshire also has units that sell mobile homes, manufacture jewelry and run power plants. The Omaha, Nebraska-based company has climbed 5.1 percent this year.

Buffett didn’t reply to an e-mail request for comment sent to his assistant, Carrie Kizer. Marie Ali, a spokeswoman for AIG’s property and casualty unit, had no immediate comment.

A drop in hurricane claims, along with improved equity and credit markets, will temper insurers’ ability to increase prices, Paisan said. Rates may fall as much as 10 percent when companies renew their insurance agreements in 2010, he said.

Fewer hurricanes “doesn’t necessarily bode well for the economics of the insurance industry, because now you’ve got no claims, which means you don’t have any pricing power,” Paisan said. “Your capital, or supply, is up, so that’s going to cause pressure on pricing.”


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Tuesday, September 29, 2009

THE STREET: Berkshire Hathaway, Moody's: Collateral Damage

By Dan Freed 09/28/09 - 09:28 AM EDT

Stock quotes in this article: BRK.A , MCO , C , GS , MS , JPM

NEW YORK (TheStreet) -- Berkshire Hathaway (BRK.A Quote) Chairman Warren Buffett can't be very happy about the performance of Moody's Investors Service (MCO Quote) in recent days, but, fortunately for his investors, the ratings giant accounts for less than half a percent of Berkshire's massive holdings.

Despite reducing its holdings twice since late July, Berkshire still owns 16.6% of Moody's. Berkshire's 39.2 million shares are worth just under $740 million going into the open Monday -- a hefty sum, unless one considers Berkshire's market cap of $153.7 billion. Even if Buffett lost the whole investment, which is hard to imagine, he could still take a big write-off to offset a portion of the more than $3 billion he's already made on paper with his investment in Goldman Sachs last year.

For the rest of Moody's shareholders, Buffett's actions should be of paramount interest, as this is not an instance when the savvy investor is selling into strength.

The ratings agencies are facing legal and regulatory threats linked to the role they played in the boom and bust in structured finance, where banks including Citigroup(C Quote), Goldman Sachs(GS Quote), Morgan Stanley (MS Quote) and JP Morgan Chase(JPM Quote) pooled ever-more-dubious home loans into bonds that were sold to investors. Many view the agencies as complicit in the wild popularity of these investment vehicles because they assigned triple-A ratings to many of the securities, dramatically understating their risk.

Moody's shares were down 3.7% Friday to $18.85 on more than triple the issue's average daily volume. The stock has lost more than 28% since Sept. 16, when it briefly touched $25.92. Shares of McGraw-Hill Companies, parent of credit ratings agency Standard & Poor's, have fallen 16% during that same period.

The latest problems for Moody's involve a former analyst at the ratings giant who is now accusing it of knowingly giving inappropriately high ratings. The analyst, Eric Kolchinsky, has taken his concerns to Congress and was scheduled to testify at a hearing on Thursday, but the proceedings were postponed after Rep. Edolphus Towns (D., N.Y.), chairman of the Oversight and Government Reform Committee, said he wants Moody's to respond to the allegations.

Additionally, Rep. Paul Kanjorski (D., Pa.), chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, said Friday he plans to hold a hearing of his own on Sept. 30. Though it's been widely known that Kanjorski was working on legislation to reform the credit ratings process, his announcement may also have contributed to the selloff on Friday.

Moody's shareholders will be watching what Buffett does from here very closely. With two rounds of selling completed this summer, the latest coming at the beginning of September, a third trimming of the stake in such a tight time frame would be a clear indication that the Oracle of Omaha, a steadfast buy-and-hold investor, is losing faith.

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GURUFOCUS: Warren Buffett owns over 138 million shares of Kraft at Berkshire Hathaway, should you?

Sep. 28, 2009 | Filed Under: KFT

The legendary investor has been accumulating shares of Kraft[KFT] ever since it was spun-off from Altria. It now represents over 7% of his portfolio and with the stock down since the Oracle purchased his stake, is it time for value investors to take a bite?

Kraft is the largest U.S. food company and the second largest after Nestle. With food and beverage brands including Kraft, Nabisco, Oscar Meyer, Post, Maxwell House, Philadelphia, Jello, and Oreo, Kraft has strong customer loyalty as evidenced by its #1 market share position in over 70% of its categories. Kraft has marketing and/or distribution channels in over 155 countries and is the second largest food producer in the world behind Nestle.

In early September, Kraft offered $17 billion for Cadbury, the British confectionary giant. Kraft stock has fallen over 8% since the announcement as the markets are anticipating that Kraft will overpay for Cadbury. The proposed consideration price reflects a 1.9x multiple on the consensus FY10 sales estimate and 11.5x the consensus FY10 EBITDA. The 11.5x forward EBITDA multiple pales in comparison to the roughly 16-17x that Mars paid for Wrigley.

Kraft wants to buy Cadbury to have greater access to the global confectionary markets which are fast growing and offer higher margins. Furthermore, the transaction would buttress Kraft’s presence in emerging markets.

Buffett, who has a 10% stake in Kraft, has stated that the company had already offered a “full price” for the British chocolate maker. He raised doubts over whether Kraft had enough shareholder support to raise its bid significantly.

Speaking recently about the takeover battle, Buffett said: “Any time you’re in a takeover, the animal spirits run high and all of that, but Kraft has the disadvantage of using an undervalued stock.” So how undervalued is Kraft?

At current prices, Kraft is trading around 12x 2010 earnings, 8.6x 2010 EBITDA and pays a 4.5% dividend. Additionally the company should generate over $2 billion in free cash flow and offers a solid 12.4% return on equity, something that Buffett has cited time and time again in his shareholder letters as the right metric to judge a business.

Buffett bought his stake in Kraft as he expects it to benefit from the current environment and recent actions of its turnaround plan. Top line growth is expected to improve over time as Kraft increases its marketing spend as well as reaps benefits from its R&D. Furthermore, margins will benefit from declining commodity costs.

At the current offered price, the transaction is expected to result in an 8% increase EPS by 2012. If Kraft were to increase the price by an additional 25% and use cash to finance the majority of the deal, the transaction could be as much as 9% accretive.

Of course, there is a possibility that Nestle and/or Hershey make an offer for Cadbury. Earlier in the decade, Cadbury and Nestle offered to buy Hershey but were rebuffed as the Hershey did not want to cede control of the American brand.

If Kraft is successful in its bid, expect the stock to remain under near term pressure, however this could offer patient investors a sweet deal. Given the revenue and cost synergies, Kraft management sees a successful acquisition accelerating its growth prospects. Management argues that a successful acquisition, at the proposed price, would increase its long-term annual EPS growth potential to 9-11% from 7-9% and organic revenue growth to 5%+ from 4%+. Furthermore, as Buffett has consistently argued, investors should look at the private market value of the business and take the long term view. With its consistent cash flow generation, strong brand presence, attractive valuation and growth prospects, Kraft offers value investors a tasty treat.

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BLOOMBERG: BYD’s Wang Chuanfu Tops China Rich List After Buffett Backing

By Bloomberg News

Sept. 28 (Bloomberg) -- Wang Chuanfu, founder of battery and car maker BYD Co., jumped 102 places to top the annual Hurun Rich List of China’s wealthiest after an investment by Warren Buffett led to a fivefold surge in his company’s shares.

The businessman’s wealth jumped to $5.1 billion, exceeding Nine Dragons Paper Holdings Ltd. founder Zhang Yin’s $4.9 billion, according to an e-mailed statement from the Hurun Report today.

Wang’s worth leapt from $880 million last year after a unit of Buffett’s Berkshire Hathaway Inc. agreed to buy a 10 percent stake in BYD. The company’s F3 has also become China’s bestselling car this year, as BYD pushes beyond its traditional focus on making rechargeable batteries for mobile phones.

Buffett’s company announced a year ago it would buy 225 million new shares in BYD for HK$8 apiece. The shares, which have surged 387 percent this year, fell 7.5 percent to HK$61.85 in Hong Kong trading today.

The company has a market value of HK$140.7 billion ($18.2 billion), according to Bloomberg data. Wang, 43, owns 28 percent, according to the Hurun Report statement.

The number of known U.S. dollar billionaires in China has grown to 130 from 101 in 2008, according to the report. There may be a similar number of billionaires not yet found, added Rupert Hoogewerf, founder and compiler of the Hurun Rich List.

The full list of China’s 1,000 richest will be released next month, the statement said.

For Related News and Information: Top People News: TOP WHO BYD Share Price: 1211 HK GP Wang Chuanfu Profile: BIO WANG CHUANFU

Last Updated: September 28, 2009 06:30 EDT

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RTT NEWS: Kraft Foods Prepares To Launch GBP 11 Bln Hostile Bid For Cadbury: Reports

9/28/2009 6:59 AM ET

(RTTNews) - Kraft Foods Inc. (KFT: News ) is poised to launch a hostile bid for Cadbury Plc (CBY: News ,CBRY.L: News , CDSCF.PK) valuing the UK-based confectioner at around GBP 11 billion, as the U.K. takeover panel is preparing to set a deadline this week, by which time Kraft Foods must put a firm offer on the table, or walk away for at least six months, media reported Sunday.

According to the reports, the US-based food giant could bid 800 pence a share, which could rise to 850 pence as the bid battle reaches its climax over the 60-day limit set by the panel for takeovers.

Kraft Foods is reportedly putting the final touches on the financing package, with which, it would be able to offer about half the consideration in cash, while the remainder is expected to be met by issuing new Kraft shares for Cadbury shareholders. Previous reports had noted that Kraft's advisers Citigroup Inc. and Deutsche Bank AG are working on setting up debt financing, which would consist of a bridge loan to be repaid with the proceeds of an investment-grade bond offering, to cover about half of the bid price. There were also reports that Kraft might seek funds from Warren Buffett, its largest investor, to finance a higher offer.

It was on September 7 that Kraft Foods announced its proposal to acquire Cadbury for 745 pence a share, totaling about GBP 10.2 billion, but Cadbury's Board rejected the offer immediately, stating that the proposal fundamentally undervalued the company and its prospects. However, Kraft Foods had said that it is "committed to working toward a recommended transaction and to maintaining a constructive dialogue and is announcing the proposal as a means to encourage and further that process."

But, Wall Street Journal reported last week, citing an interview with Cadbury Chief Executive Officer Todd Stitzer, that Cadbury acknowledged that the proposed combination would make 'some strategic sense'. Stitzer then had also said that the company was confident about growth prospects beyond the end of the restructuring plan in 2011, in the face of the unsolicited bid. "Looking beyond 2011, we will be well positioned to capitalized on new revenue growth opportunities, sustain best in class margins, while reinvesting in further efficiency initiatives," he added.

Meanwhile, speculation is high that after Kraft tables a bid, Hershey Co. (HSY: News ), a US-based confectioner, might come out with Swiss food giant Nestlé (NSRGY.PK: News ) in a joint counter offer for Cadbury, resulting in a takeover battle. Hershey and Cadbury executives discussed a merger in 2007, but the conversations never led to a deal.

KFT closed Friday's regular trading session at $26.53, down $0.15, on a volume of 11.7 million shares.

CBY settled at $51.10, down $0.17, on a 1.15 million share volume. On the London Stock Exchange, CBRY.L is currently at 803.50 pence, up 3.00 pence or 0.37%, on a volume of 712 thousand shares.

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Monday, September 28, 2009

USA TODAY: Berkshire Hathaway stock: Be prepared to be patient



Q: Is it too late for me to invest in Berkshire Hathaway class B shares (BRKB) since they have run up so much already?

A: Warren Buffett is one of the most famous, and arguably most successful, investors over time. And that's why investing in the seemingly sleepy Berkshire Hathaway (BRKB and BRKA) is irresistible to some.

Buffett is chairman and CEO of Berkshire Hathaway, which is a diverse holding company. The company's primary financial engine is a massive insurance arm, which generates cash by collecting premiums from policy holders. These premiums are then plowed back into Berkshire Hathaway's other businesses, which include everything from See's Candies to underwear maker Fruit of the Loom.

Cash from the insurance premiums is also used to create a portfolio of sizeable stakes in several publicly traded companies. For instance, at the end of 2008, Berkshire Hathaway owned 18.4% of The Washington Post, 13% of American Express and 8.9% of Kraft Foods.

You may already know all that. But what you might not know is while Berkshire Hathaway shares are up this year, they're lagging the rest of the stock market by a wide margin. So far this year, Berkshire Hathaway's B-class stock, selling for around $3,300 a share, is up around 3%, as you can see here. Meanwhile, the Standard & Poor's 500 is up about 16%, as you can see here. Keep in mind, too, that the S&P 500 pays a roughly 2% dividend yield, while Berkshire Hathaway pays no dividend.

So, the first point I'd make is that owning Berkshire Hathaway doesn't guarantee you'll get a piece of the company's world-famous returns. Again, Berkshire Hathaway is lagging the stock market this year and the gap will take quite a rally in Berkshire to close. Clearly, Buffett has a solid long-term record, and may come racing back, but assuming that he can always beat the market isn't a safe assumption.

Should you buy Berkshire Hathaway class B stock now? To find out, I'll put the stock through the four steps considered here at Ask Matt:

Step 1: Risk vs. reward. When you take a risk on a stock, you want to make sure you're properly rewarded. Downloading Berkshire Hathaway Class B's trading history back to 1996, we see the company generated an average annual compound rate of return of 11.2%. That is an outstanding return if you consider the Standard & Poor's 500's comparable return was 5.5%, says IFA.com.

To get that return, which beat the S&P 500 by 104%, you accepted moderate risk — standard deviation — of 24 percentage points. That's 48% greater than the S&P 500's long-term risk. But Berkshire has been able to generate returns high enough to compensate you for the higher risk.

Berkshire is one of the few stocks to pass this tough test. In fact, Berkshire's return since 1996 even tops the 8.3% average annual return of emerging markets stocks, measured by the IFA Emerging Markets Index, despite having nearly identical risk.

Step 2: Measure the stock's discounted cash flow. Some investors decide if a stock is pricey by comparing its current price to the present value of its expected cash flows. It's a complicated analysis made simple with a system from NewConstructs. When we run Berkshire's stock, we find it's rated "neutral." In other words, the current stock price is roughly equal to what the company is expected to generate in cash over it's lifetime. Using this analysis, it would appear Berkshire's stock is fairly priced: not cheap, but not expensive, either.

Step 3: Compare the stock's current valuation to its historical range. BetterInvesting's Stock Selection Guide can help. If the company delivers 5% annual growth, as analysts currently are forecasting, the stock is in the "sell" range according to the Stock Selection Guide. Even if Berkshire Hathaway grows at twice its estimated rate, it'll still be in the "sell" range. This is a red light for investors who believe the stock's valuation will remain close to historical averages.

Step 4: Check the company's financial health. Before investing in any company, you want to make sure it's in good financial shape. A quick way to check is to look at where it falls on the USA TODAY Stock Meter, which ranks stocks from conservative (1) to aggressive (5). Berkshire scores a middling 3.3 here. Credit rating agencies, meanwhile, continue to give Berkshire some of the highest ratings possible. You can get a Stock Meter score for almost any stock by going to money.usatoday.com and putting the stock's ticker symbol or company name into the Get a Quote box.

The bottom line: No one gets criticized for investing with Warren Buffett. Berkshire's long-term record is rock solid, and investors looking for a strong expected return relative to risk have been richly rewarded for betting with Buffett.

But the stock's run this year, amid a powerful stock recovery, have been disappointing. Meanwhile, unless profit bounces back at the companies Berkshire owns, the valuation isn't all that compelling. If you invest in Berkshire, you might want to heed the constant reminder issued by Buffett: Be patient. You might find yourself holding the stock for a while before you see why Buffett is so famous.

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THE GUARDIAN: Kraft ready to offer £11bn for Cadbury

• Takeover panel prepares to set a deadline for a firm bid
• US company could offer more than 800p a share

  • The Observer, Sunday 27 September 2009
The Cadbury factory in Birmingham

Cadbury factory in Birmingham: the company seems unlikely to stay independent if Kraft bid goes ahead. Photograph: PAUL ELLIS/AFP/Getty Images

Kraft Foods is poised to launch a hostile bid for Cadbury valuing the British confectionery business at around £11bn. The takeover panel is preparing this week to set the American group a deadline by which time it must put a firm offer on the table – or walk away for at least six months.

City sources say Kraft could bid 800p a share, which could rise to 850p as the bid battle reaches its climax over the 60-day limit set by the panel for takeovers.

The company is putting the final touches to the financing package which will enable it to offer about half the consideration in cash. The remainder will be met by issuing Cadbury shareholders with new Kraft shares.

The financing is being organised by Kraft's advisers Citigroup, Deutsche and Lazard. However, Kraft must tread carefully as with $18bn of debt, it risks losing its investment grade credit rating if it over-leverages its balance sheet. Once a firm's credit rating is cut, companies face paying higher rates of interest, reducing their financial headroom and crimping further expansion.

Assuming Kraft launches its attack, British shareholders are convinced that Cadbury's chances of remaining independent are slim, providing the Americans' lodge a final offer that comes in at well over 800p a share. Some analysts still believe that a white knight bidder could emerge after Kraft tables a bid, with an alliance of Hershey and Nestle viewed as the most credible scenario.

British groups have fallen victim to foreign bids in increasing numbers over the years, partly because our capital markets are more liberal than most. But last week City minister Lord Myners warned that too many UK firms are at risk of falling into foreign hands because their shares are owned by international funds, unconcerned with the domestic heritage of British companies.

Lord Thurso, Liberal Democrat business minister, argued it was better to play by the rules of open markets. "Don't forget that many foreign firms are taken over by British competitors. If you start to introduce protectionism, our own companies could lose out."

The takeover battle for Cadbury ignited three weeks ago when Kraft suggested informally that it acquire Cadbury for 745p a share. It took a bitter turn at the end of last week when Cadbury chief executive Todd Stitzer hit out at "unbridled capitalism" which he argued destroys shareholder value. His remarks were seen as an argument that Cadbury, which has roots in the British Quaker movement, retain its independence.

Nevertheless, on Friday Stitzer felt obliged to clarify remarks he had made at a banking conference in London when he had been reported as saying there could be strategic logic for a deal. A statement said: "For the avoidance of doubt, Mr Stitzer does not believe that Kraft's proposal makes strategic or financial sense for Cadbury and his comments should not be interpreted in any other way."

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Saturday, September 26, 2009

NY TIMES: Cadbury Chief Denies Interest in Kraft Takeover

Published: September 25, 2009

LONDON — Todd Stitzer, the chief executive of Cadbury, denied Friday that he was warming to the idea of a takeover deal with Kraft in an attempt to end an escalating controversy about comments he made at a conference earlier in the week.

The controversy erupted when some remarks Mr. Stitzer made at an investor seminar in London on Tuesday were interpreted by some in the audience to mean that Cadbury saw some merit in a combination with Kraft, a larger rival, and was just holding out for a higher price.

Cadbury, the British chocolate retailer, said Friday that Mr. Stitzer’s remarks were “seriously misrepresented” and that it was in touch with Britain’s Takeover Panel about the issue.

At the two-day conference, Mr. Stitzer was asked about the strategic merit of a combination with Kraft, but “commentary on this issue has misconstrued Mr. Stitzer’s remarks to imply a softening of his view regarding a combination,” the company said in a statement Friday.

“For the avoidance of doubt, Mr. Stitzer does not believe that Kraft’s proposal makes strategic or financial sense for Cadbury, and his comments should not be interpreted in any other way,” it added.

On Sept. 7, Cadbury rejected a takeover proposal from Kraft, the maker of Oreo cookies and Toblerone chocolates, that valued the British confectioner at $16.7 billion, saying it undervalued the company.

Cadbury’s share price has traded above the offer price ever since, with investors expecting a higher bid either from Kraft or another rival, like Hershey or NestlĂ©.

Some analysts had previously said that Cadbury could be worth as much as 43 percent more per share than what Kraft offered.

Cadbury’s share price closed up Friday for a fourth straight day, adding 5.5 pence, or 0.7 percent, to 800.5 pence

In an attempt to encourage higher bids, Cadbury asked the Takeover Panel to give Kraft an ultimatum either to make a formal takeover offer or to walk away.

A decision by the panel, an independent body responsible for supervising and regulating takeovers in Britain, is expected as early as the coming week. A spokesman for the Takeover Panel did not return phone calls seeking comment.

Cadbury has tried to clarify Mr. Stitzer’s comments ever since a sales specialist at Bank of America Merrill Lynch wrote in a note issued to his clients that “Todd admitted that there is some strategic sense in combining the two companies and he doesn’t expect Kraft to walk away, so he said his job is to get as much value as possible,” Reuters reported on Wednesday, citing the note.

Mr. Stitzer also allegedly gave a range for a fair takeover price, according to the initial note. But Bank of America Merrill Lynch later said that Mr. Stitzer did not discuss a fair price.

It would be highly unusual for a chief executive of a takeover target to comment on a successful offer price before entering into discussions with the bidder. A spokeswoman for the bank declined to comment.

Roger Carr, the Cadbury chairman, wrote Sept. 12 in a letter to Irene Rosenfeld, the Kraft chief executive, that Kraft’s proposal was unattractive because Kraft had a “considerably less focused business mix and historically lower growth” than Cadbury.

The proposal also “fundamentally fails to reflect the current value of Cadbury,” its growth prospects and potential cost savings of a combination, he wrote.

Cadbury said Friday that its “position in relation to Kraft’s proposal remained precisely as set out in the letter” written by Mr. Carr.

The U.S. billionaire Warren Buffett, who is also Kraft’s largest shareholder, has described the offer as adequate.


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REUTERS: Kraft wants Cadbury, but it's not dependent on deal

Fri Sep 25, 2009 12:25pm EDT


PHILADELPHIA (Reuters) - Kraft Foods Inc told employees it would use fiscal restraint in its pursuit of British confectioner Cadbury, and said its success as a company was not dependent on doing a deal.

"This is something we would like to do, not something that we have to do," Kraft Chief Executive Irene Rosenfeld said on Thursday in a town hall meeting with employees in Northfield, Illinois. A transcript of the meeting was filed with the U.S. Securities and Exchange Commission on Friday.

Earlier this month, Kraft made a $16.44 billion offer to acquire Cadbury but its bid has been rejected as too low.

Billionaire investor Warren Buffett, head of Berkshire Hathaway Inc -- Kraft's largest investor -- said Kraft had "a lot to do" to justify that price tag.

Rosenfeld, however, promised Buffett that Kraft would take a disciplined approach in its pursuit of Cadbury.

"We intend to remain disciplined in our actions. And I can assure you we will avoid allowing those animal instincts that Warren Buffett alluded to take over," Rosenfeld told Kraft employees.

Rosenfeld noted that Kraft aims to use a mix of cash and stock to pay for the Cadbury deal, making the strength of its stock a factor in its bid.

"The performance of our stock in the coming weeks will be a key metric that investors of both companies will be following very closely," Rosenfeld said.

Shares of Kraft have fallen about 5.8 percent since it unveiled its bid on September 7. Shares of Kraft fell 4 cents to $26.34 in Friday morning trading on the New York Stock Exchange.

She outlined the benefits of the deal, saying it would combine two highly complementary companies and benefit revenue- and profit-growth for both.

"It would create a formidable global powerhouse in snacks, confectionery and quick meals, further expand our footprint in developing markets, and expand our presence in growing trade channels like convenience stores and gas stations," Rosenfeld said.

Cadbury on Friday said it did not believe that a deal with Kraft made financial or strategic sense for the British candy company.

(Reporting by Jessica Hall; Editing by Phil Berlowitz)


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CNBC: 'Warren Buffett' Saves America In Ralph Nader's New Non-Novel

By: Alex Crippen

Executive Producer

Ralph Nader
Ralph Nader

A fictional version of Warren Buffett assembles a "cadre" of "super-rich" billionaires to "fix" the U.S. government and return "power to the people," in a new book by political candidate and activist Ralph Nader.

"Only the Super-Rich Can Save Us!" has just been published by Seven Stories Press.

Nader doesn't call his book a novel. He describes it as "a fictional vision that could become a new reality." He's also called it a "practical utopia."

In Nader's alternate reality, Warren Buffett is inspired to action by the government's inability to adequately respond to Hurricane Katrina in 2005. "He beheld in disbelief the paralysis of local, state, and federal authorities unable to commence basic operations of rescue and sustenance, not just in New Orleans, but in towns and villages all along the Gulf Coast. . . He knew exactly what he had to do. . ."

To quote the publisher's news release, Buffett "invites sixteen other super-rich individuals around a table to save America... (They) work together to unionize Wal-Mart, rebuild New Orleans with a speed and efficiency FEMA could only dream about, advance clean and transparent elections, effectively clean up the environment, and otherwise galvanize Congress and the corporate behemoths to be accountable to the people."

In an extended excerpt from the book posted by the publisher, the fictional Buffett tells a news conference:

"Our country is sinking deeper and deeper into troubles that are sapping its collective spirit and blinding it to the solutions that are ready at hand. From my observations of the rarefied world of business leaders, I’ve concluded that the vast majority are not leaders except for themselves. A society rots like a fish—from the head down. I want no part of that lucrative narcissism, that abdication from the realities that are blighting our country and the world. I am here to do my part, my duty, in persuading some of my very wealthy peers to live by the words of Alfred North Whitehead: ‘A great society is a society in which its men of business think greatly of their functions.’"

In the interviews he's been doing in recent days to promote the book, Nader says he's reached out to the real versions of the people in his book, telling the New Yorker he's made contact with "about half of his characters." Many of them have responded positively. So far, I haven't seen any mention of Buffett's reaction, if any.

And while the real Buffett is not as much of a political activist as his fictional counterpart, he has publicly supported Hillary Clinton and Barack Obama for president and called on Congress to raise taxes on the "super-rich."

He also brought together some of the world's richest people last May in New York to informally discuss how they could make philanthropy more effective. We assume, however, that no one was wearing a superhero costume.

Current Berkshire stock prices:

Berkshire Portfolio

Class A: [BRK.A 99390.00 --- UNCH (0) ]

Class B: [BRK.B 3266.99 -44.01 (-1.33%) ]



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Friday, September 25, 2009

GUARDIAN: Stitzer backs Cadbury's values in attack on Kraft's 'unbridled' capitalism

Diluting principles risks its identity, warns British firm's boss amid fears that takeover by US rival could see fair trade link dropped

Thursday 24 September 2009 22.02 BST

The Cadbury factory in Birmingham

The Cadbury factory in Birmingham, home to 'principled capitalism', according to Todd Stitzer Photograph: Paul Ellis/AFP/Getty Images

The increasingly bitter takeover battle for Cadbury was reignited tonight as its embattled chief executive, Todd Stitzer, launched a withering criticism of "unbridled" capitalism, which he argued destroys shareholder value. Stitzer's incendiary speech will be seen as an emotional appeal to shareholders to keep Cadbury independent in the face of the US food conglomerate Kraft's £10.2bn bid for the British-based chocolate manufacturer.

Speaking at a fair trade retail conference in London today, Stitzer defended his firm's "principled capitalism". Without it, he said, "you risk destroying what makes Cadbury a great company."

"We see this principled capitalism, which has been woven into the very fabric of Cadbury over the course of almost two centuries, as fundamental to our ways of working and part of our identity and success. Take it away or dilute it and you risk destroying what makes Cadbury a great company," he told delegates at the Fairtrade Foundation conference.

Though Stitzer did not mention Kraft, he went on to attack overleveraged deals, warning shareholders that such bids risked destroying long term value. His words appear to play to fears expressed by Warren Buffett, a big Kraft shareholder, who last week warned the US firm that it must be wary of overpaying for Cadbury.

Stitzer said: "Painted with a broad brush, it [capitalism] is characterised as a one-way relationship in thrall to profit margins and shareholder returns. But I have always believed there is more than one type of capitalism. It is true that unbridled capitalism can be a destructive beast, not just to those it does business with but to the company itself. History shows that those who operate in this way inevitably come undone. They over-leverage and under-invest to the detriment of the whole enterprise. The recent past has presented numerous examples, which all business leaders and shareholders would do well to learn from."

Stitzer was thrown on to the defensive this week for reportedly telling City bankers that a combination of Cadbury and its US suitor "made some strategic sense". But his aides today strongly reiterated that he was intent on doing everything in his power to keep Cadbury independent and out of the clutches of Kraft.

The Cadbury boss made a robust defence of the firm's performance under his stewardship. "Over the last five years we've delivered on average over 6% growth in revenues. Gained around 20 basis points of market share each year. Added 40 basis points of margins a year and delivered 10% total shareholder return, notwithstanding the [2008] decline in global equities."

Kraft approached Cadbury with an indicative offer valued at £10.2bn or 745p a share. At 13 times earnings, Cadbury argues the bid dramatically undervalues it. Kraft has been characterised as a profitable but dull firm desperate to break into emerging markets, where Cadbury is well positioned. Kraft says taking Cadbury under its umbrella would create a snacks and confectionery "powerhouse" with sales of more than £30bn. It would add famous British brands such as Dairy Milk, Green & Blacks and Creme Egg to Kraft's household brands that range from Maxwell House coffee to Oreo biscuits, Ritz crackers and Philadelphia cheese.

But Stitzer, in a tribute to the firm's heritage, outlined the historic role Cadbury had in the wider world, building housing and leisure facilities and being among the first firms to introduce pensions and paid leave. "The Cadbury family were Quakers who started selling drinking chocolate as an alternative to alcohol in 1824. They wanted to be a 'force for good in a troubled world' [and] 'an asset to the neighbourhood' … This performance-driven, values-led way of doing business has built a unique corporate brand," he said.

Kraft has sales of £25.7bn to Cadbury's £5.4bn. Irene Rosenfeld, chief executive, is "confident" it will carry off one of Britain's crown jewels to Kraft's Illinois home.

Cadbury insiders maintain Stitzer's "blood runs purple" – the firm's corporate colour. There are fears that a winning offer to shareholders by Kraft – thought to be above 850p – would see the reversal of Cadbury's recent commitment to the fair trade movement. The firm's Fairtrade accreditation for Dairy Milk is seen as a huge fillip to a growing movement that achieved £750m sales last year in the UK.


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