IN  a recent interview with Warren Buffett,  CNBC anchor and reporter David Faber heard from the man himself why he is set against the pending Kraft purchase of Cadbury for more than $19bn in cash and stock.

According to the interview, Buffett’s contention is that Kraft is paying too high a price and he noted with particular disdain that Kraft is selling its frozen pizza business to Nestle for what he says is nine times earnings, while buying Cadbury  at 13 times EBITDA, not a good trade in his opinion.

“They are using their own stock (260 million shares) that they're own directors say are significantly undervalued and when they calculate that 13 they're calculating kraft at market price, not at what their own directors think their stock is worth,” said Buffett.

He continued:”so, the actual multiple -- if you look at the value of Kraft stock -- is more like 16, 17 and they sold earnings at 9x. so its hard to get rich doing that and I've got lot of doubts about the deal,” he said.

But Faber reminds us that as a board member, Buffett did vote down Coke’s attempt to acquire Quaker Oats, letting rival Pepsi make what has been a very beneficial acquisition.

By Money Market Staff