The Wall Street Journal has indicated that Warren Buffett's Berkshire Hathaway (NYSE: BRK-A) has taken a 5% stake in Kraft Foods Inc. (NYSE: KFT). The stake is under 5% and looks like it was made before activist investor Norman Peltz piled into the food giant, which is under pressure from Carl Icahn as well.
What is odd is that the newspaper noted that it was unclear if Buffett sided with activist investors Peltz and Icahn. This is somewhat amusing when you consider that Buffett invests his monies on a somewhat passive basis and does more voting type initiatives. He rarely steps in and demands that companies leverage their balance sheets or pursue rapid share buybacks for a short term boost. Those initiatives are usually risks to companies because the leverage can hurt on a long term basis. Buffett always looks at these matters in the long term, even if he only holds some of these passive investments for a few quarters.
If you can figure out an average price he paid, probably in the mid-$30s, you can bet that at that price the Oracle of Omaha was thinking there was long term value in Kraft. Based on a $1.80 estimate from First Call for 2007, Kraft trades at 18.8 times 2007 estimates after the 2% drop seen this morning.
Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.
Warren Buffett buys cheese, Krafty cheese
Posted Jul 26th 2007 11:15AM by Jon Ogg
Filed under: Newspapers, Berkshire Hathaway (BRK.A), Kraft Foods'A' (KFT)
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Reader Comments (Page 1 of 1)
7-26-2007 @ 12:04PM
Michael Schneider said...
Crafty investors are buying!
Company seems to have many ways to win but they do have products that should come under increased scrutiny by a health conscious public. They could gain from better marketing abroad which is key to their plan- Chinese might buy their hot dogs but not their cheese. Generally that would be a hard sell- generally Many Chinese think cheese is pretty disgusting.
Item about the Warren Buffett purchase of Kraft shares plus many items on Carl Icahn, Warren Buffett and Nelson Pelz can be found in the (yellow label) Billionaire Watch at http://www.Barrelomoney.com.
7-26-2007 @ 5:54PM
Kim said...
NO ONE HUMAN BEING SHOULD HAVE SO MUCH MONEY, IT's VULGAR
7-26-2007 @ 7:07PM
Brian Bednarik said...
Buffett may have a good idea of what he would be getting into buying into the kraft company. He knows a lot of people with intimate knowledge of the company, including Buffett’s relationship with Marla C Gottschalk, who now serves as the CEO of Pampered Chef a Berkshire Hathaway company. (see newsvisual.com for the visual interpretation) Having someone working for you with that much previous knowledge and experience in the company could help Buffett create a much more informed opinion.