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Kraft May Come to Regret Pizza Biz Sale

Kraft Foods (KFT) really, really, really wants Cadbury. Why else would a company sell off a frozen pizza business during a recession -- especially one with successful brands like Tombstone and DiGiorno? Kraft's sale to Nestle came as a complete surprise to analysts, but the $3.7 billion Kraft gained in the deal allowed it to up the cash-to-stock ratio of its $16.5 billion offer on Cadbury.

Cadbury still isn't biting though. So far only 1.52 percent of Cadbury shareholders have approved Kraft's hostile bid. Granted, more stockholders are likely interested but playing it cool in the hopes that Kraft will raise its bid first. But most analysts think Kraft has to offer at least 800 pence per share to be successful, if not more. (The current offer is worth around 765 pence per share.)

Kraft has problems on the other side, however -- its biggest shareholder, Warren Buffett's Berkshire Hathaway Inc., voted against issuing 370 million new shares to fund the takeover. But Berkshire did say it would reverse its position if convinced that the final offer on Cadbury would not be too high. And one analyst said Buffett didn't necessarily oppose Kraft's bid, but merely wanted the company "to back their conviction with cash, and hence debt -- not equity."

Kraft has until Jan. 19 to change its offer, while Cadbury shareholders must make up their minds by Feb. 2. Regardless of the final outcome, everyone will doubtless hold their ground until the last minute. But if the deal doesn't go through, Kraft will be kicking itself for losing those frozen pizzas.

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