The big economic story this side of the pond for the past few days has been the successful hostile takeover of the iconic British chocolate and confectionary makers, Cadbury by the US based Kraft. The takeover deal – signed off on by Cadbury shareholders, but to the near total opprobrium of everyone else from Government to Cadbury workers and the chocolate eating public, has once again put Britain’s almost unique ‘takeover’ culture under the spotlight.
The Kraft bid was initially resisted by Cadbury, but in the end the leveraged £12 billion bid – financed by £7 billion of debt – forced that change of mind amongst Cadbury Board members who recommended it to shareholders. Hostile takeover bids are not uncommon in the UK, and many famous British brand names have ended up being owned by foreign companies. Shareholders are not bound to take into account longer term issues of ownership and investment, jobs and production, but they are bound to take the highest bid. There is an ignominy of sorts to this, but when newly foreign owned, former British companies such as the eponymous “HP Sauce”, with the House of Parliament featured on the bottle, shift their production overseas, impotent fury replaces ignominy and embarassment.
Cadbury was founded in 1824 by John Cadbury in the English Midlands. The Cadbury family were earnest Quakers, and part of their motivation in selling beverages such as cocoa and hot chocolate was to try and wean the working class off alcohol. They built a model factory and a model village and named it “Bourneville”, which to this day – but for how much longer – produced dark “Bourneville Chocolate”.
The Cadburys must be turning in their graves.
Despite all of the hot air from British Ministers that “jobs and investment must be secured”, there is not a jot they can do to stop Kraft or any other foreign owner doing as it pleases. As from yesterday, the decisions about jobs and investment are not made in Britain, but in Illinois. Already there is talk of some 30,000 jobs being at risk. The real winners of the Cadbury buy-out are the hedge funds, the plethora of City of London banks, lawyers and consultants who shared $390 million between them , the shareholders, and of course the bosses of Kraft. The irony of course being that not only is Kraft smaller than Cadbury, it is not as successful in marketing and selling its confectionary. With Cadbury under its belt, Kraft is now banking on an 11% increase in sales.
Neither the US or any other major European economy would allow asset stripping on the scale, or the sell off of companies deemed vital to the “national interest”. But here in Britain, Cadbury just joins another long line of companies and industries taken over, slimmed down and ultimately in some case, simply subsumed by the new parent. This partly explains the shrivelled condition of British manufacturing, now down to a paltry 11% of GDP, the power of the financial sector and the relative long term failure of the British economy. For how can Britain export its way out of recession, if it has little to export? How can there be renewed growth in good manufacturing jobs, if they can just as easily be exported overseas?
And what – after the biggest financial crisis since the Great Depression – has actually changed in the City of London, now bailed out and partially owned by the British taxpayer? Has short-termism been replaced with a longer term view of economic success and growth, based on investment? Has it hell! It’s business as usual, although soon we will run out of assets to flog off.
The hostile takeover of Cadbury has infuriated the average Brit, not because Kraft is an American company, but because people feel utterly powerless to stop the ongoing haemorrhage of jobs and industry. Everyone knew what Britain used to make when it was the “Workshop of the World”, but few have any idea what Britain makes now, because, well, largely we don’t anymore.