Warren Buffett’s annual letter to shareholders alludes to Kraft-Cadbury deal and criticizes the role of bankers
Legendary investor and CEO of Berkshire Hathaway, Warren Buffett, began his annual letter to shareholders with a warning to journalists. Sound-bite reporting, the letter says, can mislead investors who pay the price. Appropriately, his readers have to look between the lines to find a reflection on Berkshire’s recent activities.
Poorly judged acquisitions, in which investment bankers are incentivised to complete a deal regardless of its value, are particularly common in stock-for-stock deals, the letter implies. Companies, Buffett says, are commonly convinced by the value of the company they are buying. ‘In more than 50 years of board memberships, however, I have never heard the investment bankers (or management!) discuss the true value of what is being given,’ the letter says.
In the text, Buffett evaluates Berkshire’s acquisition of Burlington Northern Santa Fe, which required Berkshire to issue 95,000 shares. However, not once does he refer to Kraft’s acquisition of Cadbury – a deal that he criticized because he felt that Kraft’s shares were undervalued and too much was being offered.
‘You simply can’t exchange an undervalued stock for a fully-valued one without hurting your shareholders,’ the letter says.
Robin Froggatt-Smith
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