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.
Ultimately, executives respond to incentives. In Ms. Rosenfeld’s case, her compensation plan rewarded her for pursuing and closing the Cadbury acquisition despite using questionable tactics to fund the deal including disposing of a profitable pizza business in a very tax inefficient manner.
Here are a few excerpts from the interview:
On the Acquisition of Cadbury
“We are as excited today about the Cadbury acquisition as we were when we made the initial offer. It is transformational for the company. It sets us up on a very different growth trajectory both in terms of the categories for which we participate, higher growth categories like snacks, the opportunity to have a broader geographical footprint, particularly in developing markets and opportunities to have more participation in faster growing immediate consumption trade channels.”
On Winning Back Investors
“I think a number of our investors have some skepticism about the synergies assumptions that will come as a result of combining the two companies. I believe that one of the core competencies of Kraft has been our ability to generate synergies as we have combined companies we bought. “ “I think the challenge is just as we deliver the synergies, I think our investors will continue to feel good about the company.”
On Warren Buffett’s Objection to the Acquisition of Cadbury
“We set out a strategy to transform the company in terms of the categories in which we participate, in terms of the geographic footprint, and Cadbury is a critical piece of that puzzle as I had laid it out for all of our investors. We believe that this would set us up on a new growth trajectory. Warren Buffett has said on many occasions that he is concerned about synergies, he’s a little skeptical about the ability to generate synergies and when a company makes an acquisition, he buys two cards, one is a congratulatory card the other is a sympathy card. I feel quite comfortable that we will receive a congratulatory card in the not too long of period of time.”
On whether Rosenfeld has talked to Buffett Since Acquisition
“I have contact with Warren as I do with all of our investors. I understand that he liked our pizza business. We liked our pizza business very much but as we look at our long-term growth strategy, and the opportunity to expand it beyond North America, we made the decision it did not belong in our portfolio long term.”
“I have enormous respect for Mr. Buffett as I do for all of our investors. I understand there is skepticism about our ability to realize value from a combination of Kraft and Cadbury and I think time will tell, as we deliver against the targets we have laid out, I think we will make our case quite clearly.”
The full interview appears below.
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Disclosure: No position in Kraft. Author owns shares of Berkshire Hathaway.