It has been a long and fierce battle. Cadbury, Britain’s nearly two-hundred-year old chocolate manufacturer, rejected with scorn a bid by the giant American conglomerate, Kraft, to gobble it up. Other chocolate manufacturers turned up in search of something to nibble. Lord Mandelson said the British government would look very dimly on anyone trying to make a quick buck out of a national icon. But now it’s as good as all over. Kraft upped its offer, Cadburys’ directors said OK and it is now only for the company’s shareholders to sign the deal.
There has been an outcry. But is it justified? Does it matter? And to whom?
Those expressing most alarm and with biggest justification are the 4,500 workers employed by Cadbury in the UK. Change of ownership at the best of times creates inevitable alarm among people who fear for their jobs. But in this case there is good reason to be fearful. Kraft’s £11.7bn bid is being financed by £7bn of debt which one day they will have to pay back. The new bosses have identified savings of £413m a year they reckon they can find in Cadbury’s worldwide operations. The British company’s chairman, Roger Carr, says job losses are “inevitable”. The only doubt is whether they will be here or among the 45,000 workforce elsewhere in the world.
But outrage at the takeover goes far beyond those who may be directly involved. The reason is obvious. Cadbury has long had an iconic status within British manufacturing and within the broader culture of the nation. That’s because of its history. Founded by a Quaker in 1824, the company has long seemed to be the emblem of a gentler, paternalistic capitalism, manifest in the company’s building at the end of the nineteenth century of Bourneville, the model town for its workers to live in in the countryside near Birmingham. Cadbury was telling the world that capitalism did not have to be a cut-throat and exploitative nightmare played out in the horror and squalor of Victorian cities. It could be a kinder, more humane business.
So the selling of Cadbury to an American conglomerate looks to many like the betrayal of a dream. But is this just sentimentality?
The company itself, however much it may still show concern for the welfare of its employees, has not been slow to move with the times and with the changing culture of capitalism. It has practised what most other companies have practised: it has bought up other companies elsewhere in the world; it has outsourced its own production; and it is a very long time since it was simply a family-owned business. 45% of its shares were owned by Americans even before Kraft turned up.
In other words Cadbury is a fairly typical British company in an era of globalisation. And that era is characterised by ownership showing no respect for national boundaries. British investors have bought up companies abroad and foreign investors have bought up British companies. In this world of free-moving capital, Britain is one of the most open countries of all.
The justification for such a system is that it creates greater economic efficiency than one in which companies are protected from takeover by national financial borders policed by government regulation. Economic theory says that allowing capital to move freely means that it will end up being used most productively. But does that actually work out in practice?
In some cases it clearly does. But there are plenty of sceptics doubting that the theory fits the bill in the case of Cadbury and Kraft. What they see is an efficient and profitable British company falling prey to a pedestrian and not especially profitable larger American one which will dump debt on it and strip it of its assets. What these critics see is not the working out of laudable economic theory but something very different: the sacrifice of a good company to a coalition of interests able to make quick profit out of a deal.
Their analysis goes something like this. Once Kraft showed its interest in Cadbury, with a very low offer which was cursorily dismissed by Cadbury’s directors, short-term investors saw an opportunity. These investors, notably hedge funds (which exist precisely for such a purpose), bought Cadbury shares in the expectation their price would rise as Kraft upped its bid. This is what happened. Once the price went up, these short-term investors urged the directors to sell so that they could make their money. And longer-term investors saw that they too could make some money out of the deal so went along with it even if more reluctantly. Lawyers and bankers in the City have made millions out of negotiating the deal and Cadbury’s chief executive, Todd Spitzer, will himself go away with a very much healthier bank balance.
In short, say the critics, the outcome is precisely the one the government said it did not want: short-term profit winning out over long-term interest. In response to the outcry, however, Gordon Brown said: “We are determined that the levels of investment that take place in Cadbury’s in the United Kingdom are maintained, and we are determined that, at a time when people are worried about their jobs, that jobs in Cadbury can be secure.”
Declaring a determination is all very well, say his critics, yet without any means of enforcement it is just talk. Only by intervening in the sale itself, they argue, could the government bring about what it says it wishes. Yet the government has made clear it will not intervene. Lord Mandelson said the decision was for Cadbury’s shareholders, not the government. His Tory opposite number, Ken Clarke, takes the same view.
Defenders of this position argue that talk of the government intervening is quite out of proportion. Cadbury is, after all, a chocolate manufacturer, not exactly a company of vital strategic interest to the nation. Yet the Cadbury story is only an example of a much bigger issue. For many other once-British companies that could be said to be of vital British interest have been allowed to be taken over by foreign companies. These include strategic industries such as nuclear-power generation, other energy utilities, steel-making, airports and many others. And they at least ought to be protected from foreign ownership, it’s argued, just as the French and Germans protect their strategic industries. If we don’t protect such industries, the argument goes, then we could well find ourselves vulnerable to decisions taken far away from our shores and with our interests only dimly heard. And the consequence might be far more significant than the disappearance of a long-loved chocolate bar.
What’s your view? Do you think it matters that Kraft are taking over Cadbury’s? Do you think the regret being expressed at the sale of a British icon is mere sentimentality or not? Do you think the takeover battle was won because it is in the long-term interest of the company and its workers or because a lot of people were able to make short-term profit from it? Do you think the result will be a more efficiently-run company or not? Should the government have intervened to stop the sale or is it right to believe the decision is one for Cadbury’s shareholders alone? Do you believe Gordon Brown’s determination to protect investment in Cadbury in the UK can be enforced or not? Do you think, beyond Cadbury, that government ought to be willing to intervene to stop the sale of strategic companies to foreign buyers? And do you worry or not that many companies in vital sectors of the economy are already in foreign hands?
