David Prosser: How Buffett was hoist with his own petard

Outlook Those Cadbury shareholders who have expressed their disappointment about the terms on which the company is being bought by Kraft may take some comfort from the remarks made yesterday by Warren Buffett. It appears that Kraft shareholders – Mr Buffett's Berkshire Hathaway is the biggest investor in the US company – aren't entirely happy about this deal either.

Still, Mr Buffett has only one person to blame for the situation in which he now finds himself. As Kraft considered its options in the battle to secure Cadbury, the sage of Omaha embarrassed its management by making it clear he would not support a higher bid financed by more Kraft shares. It wasn't necessary for Mr Buffett to make the warning public, but he did so anyway.

The result of that outburst is that when Kraft realised it would have to raise its bid in order to win over Cadbury shareholders, chief executive Irene Rosenfeld felt there was no option but to make up the difference with cash rather than paper. So much so that Kraft will only have to issue new stock worth around 15 per cent of its existing share capital, less than the 20 per cent threshold above which it would be obliged to give shareholders a vote on this deal.

That means Mr Buffett now does not have a say on whether the takeover of Cadbury goes ahead. All his huffing and puffing will therefore be in vain.

Just to add insult to injury, Fitch, the credit ratings agency, yesterday downgraded its rating of Kraft. It took that view based on the even more extensive borrowings Kraft will have to incur to find the extra cash to finance the offer. It seems Mr Buffett isn't always so wise.