We have been given some exclusive coverage on the recent developments in special purpose acquisition companies and blank check companies from SPACupdate.com this morning.

Exceed Co. (NASDAQ: EDS), the Chinese apparel maker brought public through 2020 ChinaCap Acquiro, announced that it will accept warrants in exchange for shares on a 3.96:1 basis. The deal offers warrant holders a quick, guaranteed option into the company’s shares and to Exceed execs, to them it offers a quick chance to curb dilution. The offer begins Nov. 30, and will continue for 20 business days after; at the end of the offer, Exceed warrants’ old rules revert back into place.

Next week’s deal has Tremisis Energy Acquisition II (AMEX: TGY) looking to bring public Asiana IDT, a Korean information technology firm, on Dec. 1. The SPAC is one of two that were redirected by Sang Chul-Kim when the Korean businessman assumed control; North Shore Acquisition (OTC: NSAQ) is his other buyout vehicle. That SPAC has until Dec. 5 to complete its merger, although it aims to extend that until March 2010.

Camden Learning (OTC: CAEL) completed its deal to buy National American University, an online college operator. The SPAC’s success came on an $8 million forward contract with an unnamed investor; it looks as if there is another player in the blank check market looking to fill Victory Park Capital Advisors’ shoes.

For more on these mergers and other deal votes, please visit www.SPACupdate.com.

Cadbury plc (NYSE: CBY) is effectively worth almost more than ever because of the merger interest.  Kraft Foods Inc. (NYSE: KFT) has a cash and share bid worth roughly $16.4 billion already, and Cadbury wants more.  Throwing in the Hershey Co. (NYSE: HSY) bid, which  may only complicate matters.  Throw in Italy’s Ferrero and Switzerland’s Nestle, and the matter only grows further.  There are many issues to consider.  Price and antitrust regulation are just a part.

Cadbury shares were up again in London trading and in New York shares rose  on all the reports that Hershey is going to try to nibble more chocolate here.  The first issue is valuation.  Warren Buffett is not the only voice that matters in the world, but he already called the deal fully priced.  If you try to interpret Buffett, that sounds a lot like he is saying he wouldn’t buy it at that price.  And Buffett’s Berkshire Hathaway Inc. (NYSE: BRK-A) is actually the largest Kraft shareholder after looking at Buffett’s full holdings and seeing over 138 million shares (over $3.7 billion today).

Hershey is rather hard to predict as far as a company, yet there were comments last week about it wanting to be a consolidator rather than be consolidated in the inevitable consolidation in the world.  The company is effectively not controlled by common shareholders because of dual-class shares.  The market cap of almost $8.3 is almost a bit misleading as a result.

It seems that any deal outside of the Kraft deal may not be a solo-offer, meaning it would be a group bid.  Perhaps private equity would have an interest, but the old club deals have been fewer than in the peak of private equity.

The real risk of any higher bid is that Kraft will try to overstep itself and raise its offer.  This would create pressure on its finances despite a $40 billion market cap.  At the terms of today the deal can be handled.  But while the recession is not Kraft’s fault, the raw truth is that Kraft never did that great and had issues the entire decade since it came public in 2001.  It has a solid lineup of food products and poor history making any shareholders wealthy. Dead money.

Nestle is definitely in the size category that could do a competing deal, but it would seem to be a tougher sell in England and perhaps in the E.U. with regulators.  The only real issue in the Kraft deal for regulators is likely just the raw size.  Kraft is far less of a confectionary play compared to Nestle and Hershey.

The market has not overly punished Kraft for making such a large play nor for trying to get larger in the world of candy at a time that Joe Public needs to be eating less candy.  It is almost as if the starts are saying the deal should be done regardless of what it will do to the leverage inside Kraft.

To a conservative investment philosophy, it might seem that Kraft shareholders would want Kraft to fix its ship rather than to go try making itself far larger with many more brands to manage.  The $625 million in annual savings is also therefor not any guarantee, and it is also possibly not viewed a certainty that Kraft would generate 100% of its ambitions and increases in the new international markets.

Adding more data and opinion today is going to be just comparing opinion to other opinion.  Still, it is hard to ignore that the stock has held up this well.

JON C. OGG

M&A transactions with several bidders chasing one company often get so expensive that the winner in the auction become the later loser financially.

Kraft (NYSE:KFT) has offered $16.5 billion for Cadbury. Cadbury trades at nearly $55 a share. It traded for less than half of that in March. Cadbury’s earnings do not justify the higher number. As a matter of fact, the company’s shares traded for below $38 as recently as early September.

Cadbury’s stock price is about to go even higher.

The trust that control Hershey (NYSE:HSY) is pushing the company toward making a $17 billion bid for Cadbury and Nestle may join the bidding as well. There are likely antitrust problems with each of these potential offers, should one succeed, especially in the EU where regulators look especially hard at market share. Cadbury and Hershey could effectively control a huge portion of the chocolate market in a number of regions around the world.

Typically, CEOs and boards argue “synergies” that almost always involve cost cutting are a reason for paying high premiums for companies in related businesses.Cadbury earned $582 million last year on $7.8 billion in revenue. Those numbers make a $17 billion offer for the company rich and perhaps unjustifiable. Kraft has sales and margin problems of its. own. The risk that an integration with Cadbury could be costly and only partially successful is a very reasonable risk given how many other public companies marriages have failed in the past.

Kraft may win Cadbury, but at a cost that its shareholders will regret.

Douglas A. McIntyre

Colgate Palmolive (NYSE:CL) is the next likely consumer products company that will get a takeover offer. There have been rumors recently that Reckitt Benckiser, based in the UK, might be the acquirer, but the firm does not have a large enough market cap.

Colgate has a $42 billion market cap. The company had $4 billion in revenue last quarter and $926 million in operating income. Colgate’s long-term debt is a modest $2.9 billion.

The single most likely buyer of Colgate is Procter & Gamble (NYSE:PG). Its market cap is $312 billion. The two company’s lines of consumer products could be operated with a much lower G&A costs and marketing budgets if they were under one roof. The savings are likely to be in the hundreds of millions of dollars a year. P&G’s purchase of Gillette for $52 billion in 2005 was a substantial success and the integration was viewed as largely without incident. It would be the nearly perfect template for a Colgate merger.

The one issue that could undermine a move by P&G is whether antitrust officials in the US or EU would look at the combined operation as having too large a piece of some consumer products market. The EU is more likely to block a deal than US regulators, if history is any guide. But, P&G could divest some of the potential P&G/Colgate businesses if they got in the way of a Colgate purchase.

Douglas A. McIntyre

With the passing of each hour, there are more media reports that talks between GE (NYSE:GE) and Vivendi for the French company to sell its 20% of NBCU to the American conglomerate have moved closer to collapse. Without Vivendi’s cooperation, GE cannot form the joint venture it is creating with Comcast (NASDAQ:CMCSA) to take the management and eventually the ownership of the entertainment company out of its hands.

At this point the Vivendi/GE conversations may have broken down completely and Vivendi may try to force NBCU toward an IPO of the business. Vivendi believes that its stake in NBCU is worth about $1 billion more that GE is offering according to accounts in both The New York Times and the FT. Comcast is prepared to value 100% of NBCU at $30 billion.

GE may end up holding on to NBCU for at least another year, which would leave it as a sort of orphaned operation. Jeff Zucker, the current CEO of the entertainment company, is slated to keep that role if Comcast takes control. Zucker may find himself running the firm as part of GE although Wall St. views it as a drag on GE’s prospects and it an odd fit with the conglomerate’s infrastructure and industrial businesses.

NBCU faces that same difficulty that all large legacy entertainment firms do. Advertising revenue is growing slowly if at all. The costs of programming are high. Cable is becoming more competitive as new channels are launched. NBCU has a movie studio that relies on blockbusters for its profits.

Zucker needs to improve the NBCU profits, especially if he has to serve GE’s short-term needs. That will almost certainly involve a big cost cutting effort that will put hundreds of more media workers on the streets.

Douglas A. McIntyre

The trust that controls Hershey has asked the company to make a bid for UK sweets company Cadbury (NYSE:CBY).

The Wall Street Journal reports that the offer would be approximately $17 billion which would top the current offer from Kraft (NYSE:KFT)

Douglas A. McIntyre

The much-anticipated deal for Comcast (NASDAQ:CMCSA) to take control of the NBC Universal division of GE (NYSE:GE) may die next week . Vivendi, which owns 20% of NBCU, believes that the entertainment and news company is worth much more than GE does.

According to the FT, “General Electric and Vivendi are at least $1bn apart in their valuation of the French group’s stake.”

It will be a challenge for GE to operate a business that it clearly wants to sell.

Comcast has hinted that it would keep NBCU CEO Jeff Zucker at the head of the company, although he does not seem to have done much to improve the operation’s value since he took over. NBCU has faced the same pressures that other large media companies have, but it has not been as brutal about cutting costs or dumping underperforming units as its competition has. NBCU has also not moved as much of its business to the internet as some of its rivals have. Zucker has done a good job of building a successful group of cable networks.

GE will be faced with an extremely difficult problem if the Comcast deal dies. Through the first three quarters of this year, NBCU revenue has dropped from $12.5 billion in 2008 to $11.2 billion. Operating income is down $2.3 billion to $1.7 billion. NBCU will not have the benefits of a national election or Olympics to improve its sales in 2010. That will leave it the alternatives of sharply reducing costs or maintaining weak margins.

GE has counted on divesting its entertainment business so that it can focus on its core infrastructure and industrial assets. It may have NBCU on its hands for a year or more. It will have to live with the fact that it would not give Vivendi an extra few hundred million dollars to be rid of a company it should probably never have owned in the first place.

For more information on GE, see the 24/7 Wall St. 500

Douglas A. McIntyre

TD AMERITRADE Holding Corporation (NASDAQ: AMTD) has just filed an automatic shelf registration statement with the SEC today, which many rumor mongers may jump on and point to the notion that this lends more credibility to some buyout rumors from yesterday that it may want to acquire E*TRADE Financial Corporation (NASDAQ: ETFC).  AMERITRADE did not offer any terms nor any size or timing, but the offering is solely for senior debt securities and for subsidiary guarantees.  As with most automatic shelf registrations, no underwriters were mentioned by name.

And as far as a use of proceeds, that includes the general corporate purposes: “…from the sale of debt securities to which this prospectus relates will be used for general corporate purposes. General corporate purposes may include repayment of debt, acquisitions, additions to working capital, capital expenditures and investments in our subsidiaries.” That is very standard language, and the notation of the word ‘acquisitions’ is common in almost all of these aut0matic shelf registrations.

E*TRADE shares were down at $1.65 before the filing hit, and now the shares are back in positive territory by 0.5% at $1.70.  As the company effectively is under an interim-CEO status without full-time leadership defined ahead, it is of little surprise that the rumor mongers are pouncing on the name.

This isn’t E*TRADE’s first dance ticket in the rumor mill, and there was increased options activity yesterday… odd for a sub-$2.00 stock.  We have always thought of Charles Schwab Corp. (NASDAQ: SCHW) as a potential acquirer, and there are some of those new ‘bank holding companies’ which could acquires this company on the cheap.

Maybe AMERITRADE could at least get the sharp and witty talking baby campaign rather than the dry Sam Waterston ads.

JON C. OGG

This was an important week for investment guru and billionaire watchers to see which gurus were holding which stocks.  The full public equity holdings of Warren Buffett via Berkshire Hathaway Inc. (NYSE: BRK-A) were particularly of note, particularly with those B shares under “BRK-B” soon to split and giving a chance for even the less astute ranks of Joe Public to own a piece of the Berkshire dream.  Obviously the huge change is via the Burlington Northern Santa Fe Corp. (NYSE: BNI) buyout.  As part of this deal, Buffett is exiting Union Pacific (NYSE: UNP) and exiting Norfolk Southern (NYSE: NSC) stakes of about $600 million and $100 million, respectively, to avoid duplication and internal competition.  The rail transport play now accounts for about one-quarter of the total Berkshire Hathaway entity upon closing. But the less obvious position in that Warren Buffett in 2009 has made it clear that there will be a simpler and probably less “stock-hound” version of Berkshire Hathaway ahead.

Buffett has gone higher up the food chain and is likely to be a creditor now inside or to large institutions.  We have seen this during the crisis.  Buffett negotiated a better deal for Goldman Sachs Group (NYSE: GS) than the US Government was able to get.  Buffett’s preferred stock in Goldman Sachs has a dividend of 10% and is callable at any time at a 10% premium; but Buffett also got warrants to purchase $5 billion of common stock with a strike price of $115.00 per share, exercisable for a five-year term (4 years now), and Buffett would effectively get to pocket $61 per share if he exercised those all today at the market (and with a $2.6 billion warrant profit alone).

The General Electric Co. (NYSE: GE) stake was listed only as 7.77 million shares of common stock (about $125 million now), the same as it has been for quarters.  Yet last year Buffett came to the rescue with a $3 billion of perpetual preferred stock in a private offering with a dividend of 10% and warrants to purchase $3 billion of common stock.  The preferred is callable after 3-years (2 years now) at a 10% premium; the warrants have a strike price of $22.25 and are exercisable for a five-year term (4 years now).

Two other investments in preferred or note offerings made in the last year during the financial crunch were in Tiffany & Co. (NYSE: TIF) in February via 10% senior notes and in Harley-Davidson, Inc. (NYSE: HOG) with a 15% rate.  Neither of these are in the Buffett equity holdings.

Buffett increased his holdings in Wal-Mart Stores Inc. (NYSE: WMT) to 37.8 million shares versus 19.9 million shares.  This could easily be hiked from about $1.9 billion today to almost infinity with its $208 billion market cap.  With over 10% officially unemployed in the U.S., Wal-Mart has become the shopping destination of millions more of Americans and that value and thrift trend is not likely to end any time soon.

Then there is the ConocoPhillips (NYSE: COP) bet that Buffett got his timing very wrong on.  He cut his stake again here to 57.4 million shares versus almost 62.5 million shares and still has the tax benefit for selling.  He added Exxon Mobil Corp. (NYSE: XOM) with a 1.27 million share stake.  As Exxon is the largest company by market cap at $357 billion, this is much easier for Buffett to invest into rather than $79 billion market cap today in ConocoPhillips.

The Wells Fargo & Company (NYSE: WFC) stake which he grew yet again is worth over $8.7 billion, and Buffett could probably insert more money there through time if it gets cheap again.  Then there is the new Republic Services Inc. (NYSE: RSG) position of 3.625 million shares ($100 million today) where Buffett is just investing alongside buddy Bill Gates now that Gates’ entity has a board seat there and a huge stake.

Then there are the overseas bets, and these are just some:

• $2.5 billion into diversified Swiss Reinsurance Co. Ltd.
• $4 billion to buy control of Iscar Metalworking in Israel
• $230 million for a 10% stake in BYD for electric batteries in China
• $144 million or so stake in Nestle

Buffett lent $4.4 billion to Mars for the Wrigley buyout.  He also lent Dow Chemical (NYSE: DOW) $3 billion for part of the Rohm & Haas deal. As noted earlier, Buffett is going higher up the food chain.  In fact, he is almost becoming the default alternative investment bank.  And he has cut down and exiting equity positions as well.

Eaton Corp. (NYSE: ETN), in power management, and WABCO Holdings (NYSE: WBC), in parts and systems for mostly commercial vehicles, were dropped entirely this last quarter.  It seems as though Buffett is also systematically exiting the Moody’s Corp. (NYSE: MCO) position now that the business model has changed.  He still holds too much there, but maybe better late than never.

Buffett is also not betting against the Obama health care plan as he cut his stakes in both Wellpoint Inc. (NYSE: WLP) and UnitedHealth Group (NYSE: UNH). It will be interesting to see if Buffett hangs on to those drug company stakes in GlaxoSmithKline (NYSE: GSK), at 1.51 million shares, and Sanofi Aventis (NYSE: SNY), of more than 3.9 million shares.

Then when considering Buffett’s comments about the poor future of print media, you have to wonder if the Oracle of Omaha just won’t take his licks in Gannett Co. Inc. (NYSE: GCI) worth only about $39 million today and Washington Post Co. (NYSE: WPO) worth $730 million today.

It still seems obvious that Buffett would like to hold a large utility as a wholly owned subsidiary.  That may be his next ‘whale of a deal’ after he builds his cash back up over $20 billion.  Buffett got burned on his dollar bet before, but he is active internationally.  The BNSF deal is arguably a China-coal bet rather than an “all-in bet on the future of America,” assuming that is not symbiotic.  This now makes Berkshire Hathaway even more of a financial and transport operation, with far less emphasis on public common stock bets.  And he is going higher on the food chain. It will alsways be interesting to see how Buffett invests the Berkshire Hathaway fortune.  But what is obvious is that he is starting to get out of the way of some bets and make more concentrated bets elsewhere.  The new Berkshire Hathaway is more of a financial and transportation operator now… more than ever… that is also acting as private investment banker.  The investment changes over the last year are showing more of a penchant for debt and being higher up the food chain than just common stock in the U.S.

This all acts to make Berkshire Hathaway more predictable in operations and even more of a true conglomerate.  And it makes the passive investments a bit more opaque.

You can join our open email distribution list to hear more news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, key analyst calls, and more.

Again, here is the full list of Buffett & Berkshire Hathaway US public stock holdings.

JON C. OGG
November 19, 2009

Advanced Micro Devices Inc. (NYSE: AMD) rose over 10% to a yearly high of $7.33 after the computer processor maker announced today that it would offer $500 million in senior notes, the cash from which will be used to purchase its 5.75 percent convertible notes due in 2012.

ASM International N.V. (NASDAQ:ASMI) rose over 5% to a yearly high of $24.69 after the semiconductor equipment maker was upgraded by Fortis Bank Nederland NV.

Autoliv Inc. (NYSE: ALV) rose over 3% to a yearly high of $41.84 after the airbag manufacturer said that production is holding up well in the fourth quarter.

Chico’s FAS Inc. (NYSE: CHS) rose over 14% to a yearly high of $15.43 after the women’s clothes retailer announced 3Q earnings of $0.13 per share, nearly doubling analysts expectations.  

General Growth Properties Inc. (OTC: GGWPQ) rose over 35% to a yearly high of $6.19 after Simon Property Group Inc. (NYSE: SPG) announced that it had hired Lazard Ltd to lookk into buying assets from General Growth.  

Longtop Financial Technologies Limited (NYSE: LFT) rose nearly 10% to a yearly high of $35.30 after the Chinese software developer said that it had added 3.7 million additional American depositary receipts priced at $31.25.

Deer & Company (NYSE: DE) rose over 6% to a yearly high of $52.28 after Jim Cramer recommended buying shares in the tractor maker, arguing that the company would benefit from increased agricultural activity.  

Garrett W. McIntyre