12. 02. 2010

Lesson from Kraft's Cadbury takeover

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So the first blow has fallen on Cadbury’s from its new owners, Kraft.

The Keynsham plant near Bristol will close, despite the fact that Kraft promised to keep it open (that was actually a bit weird, as Cadbury itself had announced that Keynsham would be closed at some stage in the future).

And the fear, of course, as much in the mind of Peter Mandelson as in the minds of all Cadbury’s workers, is that this is just the first of many cuts that will be brought forward during the next few years.

I haven’t written about this since the takeover. Apart from the odd sardonic chuckle as the process unfolded (with that arch-globaliser Mandelson shedding a few crocodile tears at another ‘great British company’ being gobbled up by ‘predators’ like Kraft – or Warren Buffet (who owns about 9% of Kraft) complaining that it’s a really bad deal for Kraft shareholders, however good a deal it might be for Cadbury shareholders), it’s been too bloody miserable.

The optimists would have curmudgeons like me cheer up a little. They point to the pledges made by Kraft to stick by Cadbury’s ethical and Fairtrade commitments. Just before the Cadbury’s Board accepted the bid it announced that Green & Black’s would be moving its entire range to Fairtrade by the end of 2011, which elicited the following emollient words from Kraft:

“We strongly support certification as a way to improve sustainability in cocoa farming, so we welcome this step by Green & Black’s. Cadbury and Green & Black’s have proud histories in ethical sourcing, and if our offer is successful, we look forward to maintaining this heritage.”

Just so long as you ignore the unmistakable sound of grinding teeth behind the reassuring words, perhaps that really is something to be optimistic about.

But it is still a wretched outcome. And surely a complete failure on the part of Cadbury’s shareholders to tell the difference between ‘a good price’ and ‘lasting value’.

Roger Carr, who has just stepped down as Chairman from Cadbury, having felt ‘obliged’ to recommend to shareholders the offer of £11.7 billion (up from the opening bid of £9.8 billion in September last year) has now weighed in with some ‘radical ideas’ to ensure that something similar doesn’t happen again. He has suggested raising the ‘victory margin’ from 50% plus one share to 60% plus one share, and that simultaneously there should be a rule that those who bought shares during the course of any takeover battle would not be permitted to vote until the battle was over.

Useful ideas. But the lack of any genuinely radical ideas during the takeover battle was very noticeable. “This is just the way it is with markets”, as one commentator put it. Indeed! Which is why we go through the same nightmarish process with every single takeover proposal.

Why don’t we, for instance, have more John Lewis look-a-likes in the UK? The John Lewis Partnership is hugely admired even by people in the City – even if they don’t really approve of its ‘bizarre’ employee benefit Trust. But this example has been followed by very few companies over the years. As is the case with Scott Bader (a successful chemicals company), and Tullis Russell (a successful paper company in Scotland).

But there is still Royal Mail, which currently has only one shareholder (the Government), which would make it easier to think of some kind of employee ownership basis. Allan Leighton, Royal Mail’s Chairman, has indeed hinted at the possibility of some kind of employee share-ownership.

The interesting thing is that employee-owned companies regularly outperform those in the FTSE All-Share Index. Over the last 17 years, employee-owned companies have outperformed FTSE All-Share companies each year by an average of 10%. In the third quarter of 2009, for instance, employee-owned companies’ share prices were up 27.6% compared to FTSE All-Share companies share prices, which were up 21.3% over the quarter.

But we are still so stuck in our wretchedly unsustainable ways when it comes to ownership structures within the capitalist economy.

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Comments

01. 03. 2010
elizabeth

Hear hear. If only companies could change over to worker-ownership. The problem is how to translate say Corus foreign-owned shares into employee-owned shares in an affordable way. Once the shares have a certain market value they are too expensive for employees to buy or for existing shareholders to give away.

09. 03. 2010
Jazel Seven

I don’t know much about the recent Kraft take over of Cadbury’s; a British company gets sold to an American one, a factory in Keynsham will close, and there’s been the usual moral outrage by papers like the Daily Mail.

In fact, the Daily Mail went so far as to launch a Keep Cadbury British campaign, targeted at the Business Secretary, Lord Mandelson. Valiant as such efforts were though, they were under-carpet-swept and the deal went through in February this year. It can’t be easy for the powers that be at Mail HQ, balancing those free market philosophies against acutely nationalist agendas, especially in cases like that of Cadbury, where such political sways rub uneasily against each other. Not to worry though, moral outrage is moral outrage after all, and it all makes sense somewhere down the line, doesn’t it?

If you happen to be losing your job at the Somerdale factory there’s plenty of reason to be devastated. Finding a job and keeping the Sky box on just got that much harder. Similarly, if you’re an avid aficionado of British products, perhaps because you’re a little bit of a nationalist yourself, or perhaps because you simply see the sense of buying lettuces grown in Eastbourne and not Egypt, maybe you sense some lost opportunity for this island of ours to be bordering on self-sufficiency, then I’d say you’re well within your rights to moan and groan about the way the Cadbury’s story has panned out. Cadbury sentimentalists are just another group in the long line of those ignored by globalisation and its cash-kill cousins; there’s no more time and there’s certainly no pity. The soon-to-be redundant workers can only be grateful that they won’t starve to death, or have their homes destroyed in the aftermath. There are plenty worse places in the world than a recession hit town near Bristol after all. But I digress.

I don’t know how many Daily Mail readers joined the campaign, or how many more sat slumped into a Starbucks sofa or their IKEA kitchens, bemoaning the fate of Cadbury’s, but they and their ilk that did, with their vegetable trays full if Israeli potatoes and Portuguese mushrooms, their fridges freshly topped up with New Zealand lamb and out of season strawberries, their wardrobes dutifully filled with designer French and Italian clothing, would do well to stop and think.

The Cadburys-Kraft deal is just one in a very long line of international purchases that has seen Britain stripped of its companies, factories, stable employment and ultimately, any sense of control. The reasons are varied, yet they stem from one place; from us. The governments we have voted in, the decisions and agreements we have allowed them to make, our spending patterns, our obsession with low prices, trend and technology, our fickleness and disloyalty to our own nation’s products; these are the actions that have led us to where we now stand, a small fish in a global tug of war between lonely fat cats who vacuum up companies from across the globe in a war that will play only on and on, without end.

If you’ve been part of the Keep Cadbury British campaign, I suggest it’s time to put your chocolate where your mouth is. If it means that much to you, boycott Cadbury. Better still, boycott Kraft, and write them a letter to tell them why. In case you’re wondering, that means no more Capri Sun, oh and no more Dairylea, Jacobs’ crackers, Kenco, Maxwell House, Philadelphia, Pretzels, Terry’s Chocolate Orange or Vegemite as well, oh and that’s only about five percent of the Kraft products list, try this link, http://en.wikipedia.org/wiki/List_of_Kraft_brands, and good luck.

14. 03. 2010
elizabeth

Very interesting comment by Jazel. However, I don't see how buying British goods would save British companies from foreign takeovers. Companies need to be owned by their workers to keep them safe.

20. 11. 2012
Patrick

I have banned Kraft and Cadbury's after the takeover. You could just tell it was all to do with greed. They will not improve the product and it is likely they will start tampering with the ingredients. If they make it taste as gross as Hershey's then the company will be in trouble. That could be good, but to drag Cadbury down to that low standard would be very sad. Makes me annoyed to see those Dairy Milk bars draped in the Union Jack...AS IF! Mind you I wouldn;t want tax haven Nestle to have bought them either.

18. 08. 2012
Hector

Kraft made no mention of this whlist they were sealing the bid? This can't have come as any surprise to anyone, not least the poor workers who obviously had the nouse to see this coming a mile off which is why they were so against the take-over. I do feel sorry for the workers, but I do wish Mandelson had left his obviously hollow assurances at home. He knew he couldn't do anything to ensure job-losses are kept to a minimum, so why even pretend he could? Ugh, I can't stand him.I do love a bit of Green & Blacks though :-P

16. 07. 2014
James

Thank goodness there is someone else out there that shares my principles and patrotism - I haven't eaten a Rowntree product since 1988 and gave up Cadbury when they sold out to Kraft. If British companies are failing then there maybe a need for a bigger company to take them over - Land Rover and Jaguar a casing point. Successful British Companies should remain British and not be subject to hostile bids from debt ridden low growth conglomerates like Kraft.

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