market folly

Bill Ackman's hedge fund firm Pershing Square Capital Management has unveiled their latest position. Their largest holding is now Kraft Foods (KFT) as they have purchased a $950 million stake. Given Ackman's tendency to gravitate toward activist and event-driven situations, this should come as no surprise. After all, Kraft Foods is involved in the recent bidding for confectionery company Cadbury (CBY).

Pershing purchased 32 million shares of Kraft and Ackman recently said he plans to purchase more as he seeks to limit the amount of stock Kraft uses in their bid for Cadbury. Legendary investor and Kraft's largest shareholder Warren Buffett recently spoke out on this issue as he too did not want to see Kraft raise their bid. Ackman was recently quoted as saying that the deal makes "tremendous sense" and that shares of Kraft are currently "extremely undervalued." However, he just doesn't want Kraft to spend too much to acquire them. Ackman said, "There were so many investment banks working on the deal that there hasn't been good research on what the combination would look like. We think that's among the reasons that Kraft is undervalued." He also went onto say that, "The more Kraft stock they issue, the less interesting this deal is. Fortunately, the seller also prefers cash."

Ackman clearly has conviction in this play as it is now his firm's largest holding. This is not the first time Pershing has been involved, as they had previously purchased shares of Cadbury in 2007 in hopes of a takeover, a play they eventually sold out of in 2008 as it wasn't panning out. Pershing Square now jumps back into this hedge fund laden event-driven play with their purchase of Kraft shares.

As we've covered previously, there are many hedge funds involved in this potentially catalytic situation. John Paulson's hedge fund Paulson & Co bought Cadbury shares amidst takeover speculation and then doubled down on their stake. Additionally, we saw that Eric Mindich's hedge fund Eton Park Capital adding shares of Cadbury. And as we mentioned earlier, Warren Buffett's Berkshire Hathaway is Kraft's largest shareholder and is obviously involved in the situation as well. We'll have to see if this deal pans out and who comes away as the major victors.

Bill Ackman's hedge fund firm has been quite busy lately as we recently saw their research on General Growth Properties (GGWPQ), a REIT emerging from bankruptcy. Additionally, in a recent Pershing investor letter, we learned that Ackman picked up a new stake in Nestle. We've got plenty of other coverage of Pershing Square for those interested as well.

Taken from Google Finance,

Kraft is "engaged in manufacturing and marketing packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products."

Cadbury is "is a confectionery company. The Company is engaged in the confectionery business, with participation across the three categories of chocolate, gum and candy. The Company’s seven business units are Britain and Ireland, Middle East and Africa, North America, South America, Europe, Asia, and Pacific. Cadbury plc has developed a global portfolio of brands. The Company’s brands in chocolate are Cadbury Dairy Milk, Creme Egg, Flake, and Green & Black’s. Trident is the Company’s gum brand. Other gum brands include Hollywood, Stimorol, Dentyne, Clorets and Bubbaloo. Halls is a candy brand of the Company. Other brands are Maynards, The Natural Confectionery Co. and Cadbury Eclairs."