Warren Buffett is like a kid in a candy store, and he can’t get out.
The world’s most famous investor apparently has no taste for chocolate. He fought for months to prevent Kraft Inc. from buying Cadbury. With Hershey’s decision Friday to kiss off a sweeter counterproposal, it appears Kraft will go forward with the deal.
That’s got to leave a bad taste in his mouth.
Normally, big shareholders can veto a deal they believe is not in a company’s best interests, or their own. Berkshire Hathaway, which Buffett controls, owns 9.4 percent of Kraft. Yet Buffett was unable to dissuade Kraft executives bent on pursuing Cadbury and its global chocolate empire.
In fact, they made an end run around him by structuring the deal in a way that will allow them to acquire Cadbury without a shareholder vote. When the Oracle of Omaha made clear he opposed the purchase, management canceled a proposed meeting. By issuing fewer shares and borrowing more money, they kept the terms below thresholds that trigger a vote.
Buffett was steamrolled, which is something of a comfort to us mortal shareholders.
We get our proxy statements with the nice invitations to attend annual shareholder meetings in places like Omaha, Neb., or Bentonville, Ark., homes of Berkshire Hathaway and Wal-Mart Stores Inc., respectively. We try to read the boilerplate language, best done when already tucked in for the night. And we fill out the ballots that say the board of directors recommends we approve arcane executive compensation plans based on the value of the drachma in the year 1410.
We vote “Whatever” because individual shareholders have the collective might of a mosquito swarm against an oncoming windshield.
We cast our fate when we bought the stock, and we uncast it by selling.
For Buffett, selling is not much of an option. The peril of holding so many shares is the beating one takes putting them back on the market. And the punishment can be much worse if, like Buffett, potential buyers think $19 billion is too high a price for Cadbury. The British company played hard-to-get for four months, eventually wangling an extra $2.7 billion out of Kraft by playing its suitor against Hershey.
But Buffett’s patience is legendary. Berkshire Hathaway’s resources are extraordinary thanks to decades of his own canny deal-making. He and the company will rid themselves of Kraft without too much damage if the Cadbury deal becomes the albatross he thinks it will.
At least on the surface he has accepted the outcome gracefully, calling Kraft Chairman Irene Rosenfeld a “decent person” with whom he has an amicable relationship. As a bridge player, sometimes paired with Bill Gates, Buffett knows when he’s been trumped even when he held a strong hand.
He’ll just have to make the most of all that chocolate.