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When Kraft Foods Inc. (NYSE: KFT) announced its deal to acquire Britain’s Cadbury in May 2010, investor Warren Buffett proclaimed it a “dumb” deal and promptly cut his holdings in Kraft stock by more than 20%. Berkshire Hathaway Inc. (NYSE: BRK-A; BRK-B) has pared its holdings a bit more since then, and held 105.21 million shares as of March 2011.  How will the Sage of Omaha react to today’s announcement that Kraft plans to spin-off the snack food business it acquired with Cadbury?

• A brief update at 9:50 AM EST: CNBC has reported that Warren Buffett and even Nelson Peltz are both in support of the Kraft split-up.

The proposed split would create a $32 billion snack food company with brands like Oreo, Cadbury, Tang, and Trident, and a $16 billion grocery business that would continue to supply grocers with Maxwell House coffee, Jell-O, and Philadelphia-brand cream cheese. The split apparently is intended to unlock value for shareholders by creating fast growing global snack business while maintaining a more value-oriented grocery business that the company says includes “a remarkable set of iconic brands, industry-leading margins, and the clear ability to generate significant cash flow.”

What is almost funny is that this move by Kraft is going to bring up a question over whether or not Pepsico Inc. (NYSE: PEP) should consider a break-up as well.  Pepsi is a snack-food business and a beverage company.  It seems like a stretch to think that this will actually force Pepsi into the break-up bin as the company is growing and is happy with its businesses.

Ralcorp Holdings Inc. (NYSE: RAH), makers of Post-brand cereals and other private-label foods, recently announced a that it will split the Post Foods business from its private-label business. Integrated oil and gas major ConocoPhillips Corp. (NYSE: COP) is splitting off its refining and marketing business, as has Marathon Oil Corp. (NYSE: MRO) when it created Marathon Petroleum Corp. (NYSE: MPC) out of its refining and marketing segment.

Kraft’s split will be a tax-free spin-off of its grocery business to Kraft shareholders and is expected to be completed by the end of 2012.

Buffett should probably like this deal. Provided, of course, that the spin-off does not negatively affect the current 3.4% dividend yield on Kraft stock. And provided that the snacks business is attractive enough that he can sell his shares at a profit if he chooses to do so.

Buffett liked Kraft before the Cadbury acquisition for its leading position in a critical business. There’s no reason to believe that he won’t like the company again once it sheds what he likely believes to be its more volatile segment.

Kraft has also been one of the 30 stocks in the Dow Jones Industrial Average since September 2008, when it replaced American International Group, Inc. (NYSE: AIG). Today’s announcement shouldn’t affect Kraft’s position in the DJIA because the company was added before it acquired Cadbury.  Still, it will be interesting to see how this affects the weighting after the price change takes place as the DJIA is a price-weighted index rather than a market cap weighting.

Kraft’s shares are trading more than 5.5% higher at $36.17 right after the open and shares have hit a new high of $36.30 today.

Paul Ausick