Buffett's Berkshire Becomes Largest Shareholder in Kraft Foods
By Josh P. Hamilton and Erik Holm


Feb. 15 (Bloomberg) -- Billionaire Warren Buffett's Berkshire Hathaway Inc. became the largest shareholder in Kraft Foods Inc., the world's second-biggest foodmaker.

Berkshire owned 132.4 million shares, or about 8.6 percent of Northfield, Illinois-based Kraft, according to a regulatory filing yesterday that updated the company's holdings as of Dec. 31. Kraft, the purveyor of Nabisco crackers and Maxwell House coffee, has been independent since March, when Altria Group Inc. spun off its majority interest.

``Kraft's a portfolio of iconic brands in a company that was undermanaged for quite a long time,'' said Tom Russo, who helps manage $3 billion, including shares of Berkshire and Kraft, at Gardner Russo & Gardner in Lancaster, Pennsylvania. ``The brands have the ability to carry the returns, once they're properly managed, which you're seeing under way now.''

Buffett, the second-richest man in the U.S., is often mimicked by investors who follow his stock picks. Using that strategy for the past 31 years would have delivered annual returns of about 25 percent, double the return of the Standard & Poor's 500 Index, according to an academic study. The index declined 3.8 percent in the fourth quarter.

Berkshire, based in Omaha, Nebraska, also disclosed a stake in drugmaker GlaxoSmithKline Plc, with 1.51 million American depositary receipts. The company increased holdings in Wells Fargo & Co., the nation's second-largest home lender, by 3.4 percent since Sept. 30 to 289.3 million shares.

`A Field Day'

``Warren Buffett is having a field day,'' said Frank Betz, who helps manage $800 million, including Berkshire shares, at Carret Zane Capital Management in Warren, New Jersey. ``He's always looking, but now he's seeing things that meet his standards'' at reduced prices.

Kraft has declined about 15 percent during the past 12 months in New York Stock Exchange composite trading. The ADRs of London-based GlaxoSmithKline, the world's second-largest pharmaceutical company, have lost 26 percent in the past year, and San Francisco-based Wells Fargo dropped 18 percent.

Buffett, 77, built Berkshire's portfolio by investing premiums from insurers such as Geico Corp., National Indemnity Co. and General Reinsurance Corp. Other subsidiaries include ice cream company International Dairy Queen Inc., business-jet fleet operator NetJets Inc. and carpet maker Shaw Industries. Berkshire earned $10.3 billion in the first nine months of 2007.

Buffett, who says he reviews hundreds of annual reports each year in search of the best investments, made Berkshire the largest holder in Kraft, according to Bloomberg data, with a holding worth about $3.9 billion. He has said he likes to take large stakes in the companies he knows best.

`Protection Against Ignorance'

``Wide diversification is a protection against ignorance, and we try to understand what we're doing,'' Buffett said in October in China. ``And if we don't understand it, we don't do it at all.''

Berkshire also increased its position in CarMax Inc., the biggest U.S. used-car dealer, by 50 percent to 21 million shares. The 9.6 percent stake, worth about $396 million, may make Berkshire the second-largest shareholder in the Richmond, Virginia-based company, according to Bloomberg data.

Investors can't always determine exactly what Berkshire owns at any given time or whether holdings have been cut or raised because Buffett sometimes asks the Securities and Exchange Commission for permission to temporarily delay disclosure of holdings to deter copycat investing. Yesterday's filing lists stocks traded on U.S. exchanges that were valued at $68.8 billion. Shares traded on non-U.S. exchanges aren't reported to the SEC.

Holdings Disclosed

Buffett disclosed yesterday that the company held 69.6 million shares of Kraft on June 30 and 107.2 million on Sept. 30. The Wall Street Journal in July reported Berkshire had acquired a position of less than 5 percent of the shares, citing an unidentified person familiar with the purchase.

Kraft is ``pleased by Mr. Buffett's vote of confidence,'' Perry Yeatman, a spokeswoman for the foodmaker, said yesterday.

Berkshire's stake in GlaxoSmithKline, Europe's largest drugmaker, is valued at about $65.4 million. The investment follows purchases of stock in several health-care companies during the past 12 months, including UnitedHealth Group Inc. and WellPoint Inc., the two biggest health insurers in the U.S. Berkshire has also purchased shares of Johnson & Johnson, the world's largest health-products company, and a stake Sanofi- Aventis SA, France's largest drugmaker.

More Pills

``Big Pharma has their hand in everybody's pocket these days,'' Carret Zane's Betz said. ``Old people like me are going to need more and more pills all the time, and for a longer time.''

Berkshire, with a market value of about $221 billion, gained about 4,700 percent in 20 years through Dec. 31, about six times better than the Standard & Poor's 500 Index including dividends. The stock closed yesterday at $142,990 and has gained 32 percent in the past 12 months.

Buffett's net worth was estimated at $52 billion by Forbes Magazine in September, ranking behind only Microsoft Corp. Chairman Bill Gates in the U.S.

Berkshire's biggest U.S. stock investment remains Coca-Cola Co., the world's largest soft-drink maker, with 200 million shares worth about $11.7 billion. Buffett has told investors at Berkshire's annual meeting that he drinks Cherry Coke every day.

Wells Fargo is Berkshire's second-largest U.S. holding, valued at $8.56 billion, followed by American Express Co., the third-largest U.S. credit card network. Berkshire owns about 8.8 percent of Wells Fargo, according to Bloomberg data.

Berkshire reduced its holdings in Iron Mountain Inc., the world's largest seller of records-management services, by almost 50 percent from Sept. 30 to 4.66 million shares.