Wednesday, January 20, 2010

Cup Hands: there goes Cadbury

The long saga of Kraft's bid for Cadbury is now over. The board of the British chocolate company has now agreed that the bid from the American food giant should now go ahead. Personally I think it is the wrong decision at several levels. Firstly Kraft has a poor record in confectionery: their takeover of the Swiss Jacob Suchard thirty years ago was not a demonstrable success. and the once premium Suchard brands like Milka are now mostly also-rans in their markets. It is not clear to me that the Illinois-based company will be a particularly good steward of these businesses which have acquired a massive brand equity since the foundation of the Cadbury firm in 1824. After all the repeated takeover deals that Kraft has been involved with, from Phillip Morris to Nabisco are classic examples of value destroying M&A activity. There are also clearly going to be substantial job losses- with Cadbury's UK headquarters likely to be closed, and jobs transferred to Kraft's European headquarters in Zurich.

More than that though, I feel very uncomfortable with the way in which this deal has been concluded. The large pay-off to the Cadbury board: a reported £12 million to the managing director alone makes may question whether or not the British company's board simply put their own interests ahead of those not just of their workforce but also their shareholders.

The workforce at Cadbury have every right to feel somewhat betrayed- and the history of Cadbury makes the role of the workforce important. Cadbury was founded by a Quaker family upon Quaker principles. The huge pay-off that the board is now said to be in line for is an amount of money that would have shocked the founders as an example of naked greed. That it comes at the expense of the workforce whose interests Cadbury's founders always sought to protect and promote is -at best- a very unhappy situation, at worst it is a scandal.

If Cadbury was a French company, the job losses alone would make the French government at the least investigate the takeover. Unfortunately the real interests of the UK: maintain Britain as the headquarters of world class businesses are being drowned in the short term interests of the board of Cadbury.

This is a deal that Peter Mandelson should call in and at least investigate.

Yet he probably won't, and another part of Britain's business heritage is going to leave the UK. As we have seen with Nestle's takeover of Rowntree Mackintosh, being a branch of a global business diminishes British economic power and loses British jobs. Cadbury represents another step down for the UK and indeed for British companies on the London stock exchange.

A sad day indeed.


Josh Rimer said...

And did you see how upset everyone on Twitter in the UK was about it being an American company? I talk about it in my video and show some of their tweets at - they're convinced an American company is going to ruin the chocolate!

Anonymous said...

Great post Cicero.

It's also very disturbing how much Kraft are borrowing to pay for it. If there is trouble in the dollar and the pound over the next 18 months, with interest rate hikes, will they be able to service the loans? And if not, what then? Will they be a takeover target or will they simply collapse?

A very stupid decision all round.

Newmania said...

I`m in two minds here . It has been obvious to me for years that Cadbury`s were losing the plot . The products were poor quality and never seemed to hit the spot ..( well ok there are cream eggs but thats it )
Who would buy Cadbury`s when there was a Galaxy sitting next door ? No-one obviously , so the first fault here is with the Company.It could not have just gone on as it was

Having said that I am also horrified to learn of the amount of borrowing involved and this when credit is supposedly not flowing.

Anonymous said...

We still have time to persuade the shareholders that this is not a good idea.They have until February 2nd before they vote.If enough of them vote no then it cant go ahead.There is a petition you can add your name to at:

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