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Originally published Wednesday, January 20, 2010 at 7:53 AM

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Buffett critical of Kraft but won't sell stake

Warren Buffett said Wednesday he doesn't approve of Kraft's $19.5 billion acquisition of Cadbury, but he doesn't plan to sell his stake in the company.

AP Business Writer

OMAHA, Neb. —

Warren Buffett said Wednesday he doesn't approve of Kraft's $19.5 billion acquisition of Cadbury, but he doesn't plan to sell his stake in the company.

Buffett's Berkshire Hathaway Inc. is Kraft's largest stockholder and he has been vocal about his belief that Kraft overpaid for the European chocolate and gum maker. Kraft sold its pizza business for about $3.7 billion to help fund the deal.

Buffett said Wednesday that Kraft paid too much for Cadbury and used an extremely undervalued stock to do so.

"I think this deal is a mistake, and I think selling the pizza business was a mistake," Buffett said.

But Buffett told The Associated Press in an interview before Berkshire's special shareholder meeting that he plans to keep the 138 million Kraft shares his company holds.

Berkshire shareholders voted Wednesday to split the company's Class B shares 50-for-1 in a move tied to Berkshire's $26.3 billion acquisition of Burlington Northern Santa Fe Corp. Buffett acknowledged that both Berkshire and Kraft are using what he considers undervalued stock to complete acquisitions, but he said only Berkshire's deal is priced right.

"In the case of Kraft, they're paying an extremely full price and using an extremely undervalued stock," Buffett said.

Kraft and Cadbury announced agreement on their sweetened deal on Tuesday. Kraft eliminated the need for a shareholder vote on the deal by reducing the share portion of the deal below 20 percent, so Berkshire won't get a vote on it.

For each share of Cadbury, stockholders are to receive 500 pence cash and 0.1874 new Kraft shares - which closed down 17 cents at $29.41 Tuesday. The bid values Cadbury 50 percent higher than its market value before Kraft first said it wanted to buy the company in September.

Kraft shares slid Wednesday as Buffett voiced his dissent, trading down 2.4 percent at $28.70. At the lower share price, the Cadbury deal would be valued closer to $19.4 billion.


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