Warren Buffett & Bill Ackman Interviews

Warren Buffett of Berkshire Hathaway and Bill Ackman of hedge fund Pershing Square recently sat down with CNBC in two separate interviews. While the two men shared a talking point in the recent Kraft deal (they are both large shareholders), we thought it was interesting to hear their recent takes on the economy and markets.

In his interview, hedge fund manager Bill Ackman says that you are buying Kraft (KFT) at less than 14 times earnings and get a 4% dividend yield. He liked the fact that Kraft used a limited amount of shares (and used more cash) in the deal and in the end paid a fair price to get the deal done. As we covered earlier, Kraft is now Pershing Square's largest holding.

Ackman argues that Kraft's purchase of confectioner Cadbury now makes Kraft a more 'defensive' play. Obviously it will take a bit of time to integrate the two businesses, but the Pershing Square hedge fund manager points out that Kraft has done it numerous times before with other transactions.

Embedded below is Ackman's video interview where he outlines his thoughts on the Kraft and Cadbury deal. RSS & Email readers will want to come to the site to view this post as there are a lot of videos included:


And here is part two of Ackman's video interview where he talks about some of his other portfolio activity and his take on the economy:


Moving next to Warren Buffett, we see that he shares a different opinion on the matter of the Kraft and Cadbury deal. Below he gives his thoughts on Wells Fargo (WFC), the economy, Ben Bernanke, and much more.




We've followed these two gentlemen extensively before and have covered numerous resources such as Warren Buffett's recommended reading list, Pershing Square's research on General Growth Properties (GGWPQ). For more insight from these two big time investors, head to our resources on Warren Buffett as well as our resources on Bill Ackman.

Kraft Foods: Pershing Square's New Largest Holding

Bill Ackman's hedge fund firm Pershing Square Capital Management has unveiled their latest position. Their largest holding is now Kraft Foods (KFT) as they have purchased a $950 million stake. Given Ackman's tendency to gravitate toward activist and event-driven situations, this should come as no surprise. After all, Kraft Foods is involved in the recent bidding for confectionery company Cadbury (CBY).

Pershing purchased 32 million shares of Kraft and Ackman recently said he plans to purchase more as he seeks to limit the amount of stock Kraft uses in their bid for Cadbury. Legendary investor and Kraft's largest shareholder Warren Buffett recently spoke out on this issue as he too did not want to see Kraft raise their bid. Ackman was recently quoted as saying that the deal makes "tremendous sense" and that shares of Kraft are currently "extremely undervalued." However, he just doesn't want Kraft to spend too much to acquire them. Ackman said, "There were so many investment banks working on the deal that there hasn't been good research on what the combination would look like. We think that's among the reasons that Kraft is undervalued." He also went onto say that, "The more Kraft stock they issue, the less interesting this deal is. Fortunately, the seller also prefers cash."

Ackman clearly has conviction in this play as it is now his firm's largest holding. This is not the first time Pershing has been involved, as they had previously purchased shares of Cadbury in 2007 in hopes of a takeover, a play they eventually sold out of in 2008 as it wasn't panning out. Pershing Square now jumps back into this hedge fund laden event-driven play with their purchase of Kraft shares.

As we've covered previously, there are many hedge funds involved in this potentially catalytic situation. John Paulson's hedge fund Paulson & Co bought Cadbury shares amidst takeover speculation and then doubled down on their stake. Additionally, we saw that Eric Mindich's hedge fund Eton Park Capital adding shares of Cadbury. And as we mentioned earlier, Warren Buffett's Berkshire Hathaway is Kraft's largest shareholder and is obviously involved in the situation as well. We'll have to see if this deal pans out and who comes away as the major victors.

Bill Ackman's hedge fund firm has been quite busy lately as we recently saw their research on General Growth Properties (GGWPQ), a REIT emerging from bankruptcy. Additionally, in a recent Pershing investor letter, we learned that Ackman picked up a new stake in Nestle. We've got plenty of other coverage of Pershing Square for those interested as well.

Taken from Google Finance,

Kraft is "engaged in manufacturing and marketing packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products."

Cadbury is "is a confectionery company. The Company is engaged in the confectionery business, with participation across the three categories of chocolate, gum and candy. The Company’s seven business units are Britain and Ireland, Middle East and Africa, North America, South America, Europe, Asia, and Pacific. Cadbury plc has developed a global portfolio of brands. The Company’s brands in chocolate are Cadbury Dairy Milk, Creme Egg, Flake, and Green & Black’s. Trident is the Company’s gum brand. Other gum brands include Hollywood, Stimorol, Dentyne, Clorets and Bubbaloo. Halls is a candy brand of the Company. Other brands are Maynards, The Natural Confectionery Co. and Cadbury Eclairs."

Hedge Fund Paulson & Co Buys Even More Cadbury (CBY)

Literally just yesterday we touched on the fact that hedge fund manager John Paulson is betting on the Cadbury (CBY) buyout by buying shares. Well, he has just bought even more. Paulson purchased 6,395,000 more shares at a price of 759.96 pence each. This brings his total securities exposure to 26,768,256 shares. As we touched on yesterday, Paulson also has 8,116,401 shares of exposure through CFD derivatives. The hedge fund now has an aggregate ownership stake of 2.54% of the company with 34,884,657 shares represented. Here are screenshots of the regulatory filings:

(click to enlarge)


(click to enlarge)

Paulson & Co has now bought shares of CBY as the price heads higher, implying that they are confident that Cadbury will receive a higher bid from suitor Kraft Foods (KFT). As always we'll continue to monitor the situation. Stay tuned this coming week as we'll be starting the next leg of our hedge fund portfolio tracking series where we'll update the arbitrage heavy equity portfolio of John Paulson's firm and many other prominent hedge funds. In the mean time, you can read up on Paulson's big bet against the US dollar.

John Paulson's Latest Bet: Doubling Down On Cadbury (CBY)

John Paulson's hedge fund Paulson & Co has doubled down on their Cadbury (CBY) stake. According to UK disclosures, Paulson emphatically boosted his stake in Cadbury to 2.1% of the company as he purchased 14.8 million shares at a price of 759.59 pence each in the UK market and he now owns a total of 28.5 million shares. This means he bought 112 million pounds sterling (or $187 million) worth of shares. Cadbury of course was the recent subject of a bid from Kraft Foods (KFT) to take over the company. Paulson seems to be wagering that not only will a buyout happen, but it will come at a higher bid. Kraft's stock and cash offer was for 720p while Cadbury was trading around 763p. Needless to say, it appears many besides Paulson think that given Cadbury's rejection of the initial bid, a higher bid is inevitable. We note that Paulson & Co is not the only prominent hedge fund in this play as Eric Mindich's Eton Park Capital had been buying shares in September for 800 pence each.

While hedge fund Paulson & Co has been thrust into the spotlight over the past 2 years for their bet against subprime or their more recent big gold purchase, many seem to forget or overlook the fact that Paulson's equity strategy involves merger arbitrage and this type of play is right up his alley. While we cannot verify that Paulson & Co specifically has done this, it would be pretty safe to assume that like most funds pursuing this trade, he would go long Cadbury and then short Kraft. And, as FTAlphaville points out, "the short base in Kraft - a measure of how much of its total share pool is on loan - has risen by 45 per cent in the past week. Meanwhile, utilisation - the amount of stock available to borrow that has actually been borrowed - now stands at 4.2 per cent." Clearly, the merger-arb players are out in full force.

Interestingly enough, 1.49% of Paulson's ownership stake in Cadbury is represented by securities, while 0.59% of their ownership stake is represented by derivatives, and in particular, CFD's (contract for difference). We've previously examined what CFDs are as it is unique to the UK and hedge funds often use this derivative to help establish a position in a company. This primer of course goes right along with our introduction on how to track a hedge fund's UK positions. We're expanding our portfolio tracking coverage to include stakes held in other markets and many prominent hedge funds often hold positions in UK based companies. To see what some of the largest hedge funds are buying and selling in the UK, head to our most recent post covering Moore Capital Management, Louis Bacon's hedge fund firm.

In other notable activity, Paulson also recently invested $77.9 million in insurer Conseco (CNO). This purchase comes from 16.4 million common shares as well as warrants to purchase 5 million additional shares in a new offering that was announced October 14th that will dilute current shareholders. This gives Paulson & Co a 9.9% stake in the company.

So now we wait to see if Paulson can get that higher bid he is hoping for in his most recent play. For more on John Paulson and his hedge fund, we highly recommend checking out WSJ columnist Gregory Zuckerman's new book, The Greatest Trade Ever, where he had exclusive access to Paulson in order to pen the story behind his victorious subprime bet. And reportedly, Paulson is not necessarily happy with how the book turned out. You can read our book review here.

Taken from Google Finance,

Cadbury plc "formerly Cadbury Schweppes plc is a confectionery company. The Company is engaged in the confectionery business, with participation across the three categories of chocolate, gum and candy. The Company’s seven business units are Britain and Ireland, Middle East and Africa, North America, South America, Europe, Asia, and Pacific. Cadbury plc has developed a global portfolio of brands. The Company’s brands in chocolate are Cadbury Dairy Milk, Creme Egg, Flake, and Green & Black’s. Trident is the Company’s gum brand. Other gum brands include Hollywood, Stimorol, Dentyne, Clorets and Bubbaloo. Halls is a candy brand of the Company. Other brands are Maynards, The Natural Confectionery Co. and Cadbury Eclairs. On May 7, 2008, it completed the demerger of the Americas Beverages business, which became Dr Pepper Snapple Group, Inc. (DPS) following the demerger."