Buffett cuts Kraft stake after deal he called 'dumb'
Warren Buffett's Berkshire Hathaway Inc. lowered its stake in Kraft Foods Inc. in the first quarter as the billionaire opposed the foodmaker's takeover of Cadbury Plc and the sale of its pizza brands.
"Both deals were dumb," Buffett told Berkshire investors May 1 in Omaha, Nebraska, where his company held its annual shareholders' meeting. "The pizza deal was particularly dumb."
Berkshire cut its holding in Kraft by 23 percent, or about 31.5 million shares in the three months ended March 31, Berkshire said today in a regulatory filing disclosing U.S. equity investments at the end of the first quarter. The remaining holding is valued at about $3.26 billion based on today's closing price of $30.55 on the New York Stock Exchange.
Berkshire also eliminated its stake in health insurers WellPoint Inc. and UnitedHealth Group Inc. and lender SunTrust Banks Inc. Buffett has been selling equities in part to fund the acquisition of companies including railroad Burlington Northern Santa Fe Corp.
Berkshire reduced stakes in Johnson & Johnson, the health- care products company based in New Brunswick, New Jersey, by 12 percent, and in Gannett Co., the newspaper company based in McLean, Virginia, by 21 percent.
Berkshire's filing showed a 9.4 percent reduction in its stake of ConocoPhillips, the third-biggest U.S. energy company. The filing also showed a reduction in holdings of Costco Wholesale Corp., the largest U.S. warehouse club, by 18 percent. Berkshire Vice Chairman Charles Munger is on Costco's board of directors.
China, GermanyIn February, Buffett, 79, completed his biggest takeover, paying about $27 billion for the 77.5 percent of Burlington Northern that Berkshire didn't already own. In recent years, some of his biggest stock bets have been outside the U.S.Berkshire's 2008 investment in Chinese carmaker BYD Co. soared to a market value of $1.99 billion at the end of December, compared with a purchase price of $232 million.Berkshire became the biggest shareholder in reinsurance rival Munich Re of Germany in the first quarter. Buffett's firm disclosed a stake in the world's largest reinsurer in January when the holding exceeded 3 percent.Kraft in March acquired Uxbridge, England-based Cadbury for about 13.6 billion pounds ($21 billion) in cash and stock after a five-month pricing dispute. The deal transformed the Northfield-based company into the world's biggest confectioner, and Kraft said the acquisition would give it leading positions in emerging markets. The purchase was partially funded by the sale of Kraft's DiGiorno and Tombstone pizza brands to Nestle SA.'Bad Deal'"I just hated to see them give up a significant portion of those businesses to buy Cadbury" at the price of the sale, Buffett said May 1. He had previously called the acquisition "a bad deal" based on Kraft's share price at the time, which he considered to be low. Buffett called Kraft Chief Executive Officer Irene Rosenfeld a "perfectly capable" manager, and Berkshire remains the largest investor in Kraft stock, according to data compiled by Bloomberg."The Cadbury acquisition is a great one for Kraft Foods," said Michael Mitchell, a spokesman for the company, in an interview today. "It was absolutely the right decision for our company. With the acquisition of Cadbury and the sale of our pizza business, we have dramatically improved our portfolio to one that is skewed to faster growing categories, geographies and distribution channels."Mitchell said that Buffett cut other stakes as well and that "it does appear he has reduced his holdings in a number of companies to pay for the Burlington acquisition."CarMax, TravelersBerkshire trimmed its stake in CarMax Inc., the Richmond, Virginia-based used car dealer, by 3.4 percent, and eliminated a holding of New York-based insurer Travelers Cos.Berkshire's stake in Franklin Lakes, New Jersey-based Becton, Dickinson Co., a maker of medical devices and supplies, climbed by 16 percent. Buffett's company added 2.5 million shares of Phoenix-based trash hauler Republic Services Inc., an increase of about 30 percent.Hugh Suhr, a spokesman for Atlanta-based SunTrust, and Cheryl Randolph of UnitedHealth declined to comment. WellPoint had no immediate comment.Buffett, who is Berkshire's chairman and CEO, makes most of the investment decisions at the company, while Lou Simpson, 73, manages the portfolio for car insurance unit Geico. Buffett has cautioned investors against assuming all changes in the equity portfolio are his.