So Cadburys has thrown in the towel. The company board has recommended the latest £11.7 billion takeover from US conglomerate, Kraft, after one of the bitterest takeover battles in recent corporate history. What this demonstrates clearer than ever is that global financial interests now wholly dictate the fates of millions of workers and can ignore governments at will. It begs the question of why we elect national governments if they are prepared to abrogate their role of acting in the country’s interest. This takeover should also kick-start the old debate over the susceptibility of British industry to foreign takeovers. It also demonstrates that this government has learned nothing from the recent banking debacle: until the big financial institutions are properly challenged by government and brought under state control, we will remain helpless in the face of these rapacious monsters.
Despite some resistance from Cadbury’s board to the initial offer, Kraft was able to persuade large institutional shareholders to accept their increased bid. Unite says that this increased bid, an estimated £12 billion, and the continued exclusion of workers and key shareholders from the takeover consultation, means its concerns for Cadbury's future and the future of nearly 7,000 workers in the UK and Ireland remain.
Cadbury, the iconic chocolate firm started by the eponymous Quaker family in Birmingham around 186 years ago, apparently gave way after Franklin Templeton, the US mutual fund with a 7% stake, joined hedge funds in revealing that it would accept the higher Kraft offer equivalent to 850p a share.
Professor David Bailey from Coventry University Business School in a recent issue of the Birmingham Post points out that, ‘more than a quarter of Cadbury shares are now held by hedge funds which bought the shares to make a fast profit in a takeover situation. That effectively undermined long-term shareholder commitment.’
Cadbury now joins the long list of British firms gobbled up by foreign takeovers, from BAA, Boots, Corus, ICI, Jaguar Land Rover, P&O, Pilkington, Scottish Power etc.
Despite Mandelson’s belated crocodile tears for the company and its workers, the government is effectively powerless to act once a takeover has been agreed. The Blair government removed the 'public interest' clause of UK competition policy regarding takeovers in 2000. This had given governments the power to block takeovers that threatened jobs, the national economy or essential regional development etc, but Stephen Byers the then Secretary of State for Trade and Industry thought that was all too-interventionist. EU legislation has also made it increasingly difficult for national governments to intervene to protect national interests. So, after disarming itself of even the modest weaponry it had, the government is now impotent to act.
Unite warned that as many as 30,000 jobs could be put at risk by the deal, with Kraft facing the need to service over £20 billion in debt after the takeover. Analysts predict that Kraft will be seeking to generate up to $1 billion in savings through mass redundancies and restructuring, Unite says Kraft must give commitments on a set of minimum employment protections, including no compulsory redundancies and protections for the workers' terms and pensions. However these are unlikely to be given, as the real reason behind the takeover is precisely to shed jobs, divest assets and pull in the cash. Unite also underlines this by pointing to Kraft's aggressive track record on cost-cutting, shedding some 19,000 jobs between 2004 and 2008 and closing 35 plants.
With the role of hedge funds highlighted in the Cadbury case, there will be questions about whether they should be stripped of voting rights in future takeover situations if they have bought in during a takeover situation and have held shares for, say, less than a year. However the lobbying power of these hedge fund companies makes this very unlikely. And of course such takeovers rarely work; the majority of deals waste shareholder value and lead to huge disruption - and that's before considering the wider social and economic damage.
The people who really make money out of takeovers are the investment bankers. The Cadbury takeover will generate a fees bonanza in London and New York, with advisors at Lazard (lead advisor to Kraft during the whole affair), Citigroup, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS making around £120 million. Cadbury’s financial adviser, UBS also stands to make a killing on the deal.
These financial advisers and consultants are the real beneficiaries of such takeovers. The Cadbury workers have no say in all of this, anymore than the British electorate does.
Jennie Formby, Unite's national officer for food and drink, said: "We have very real fears about how Kraft will repay its debt, particularly as it has ratcheted it up still further in order to purchase Cadbury. Whatever good intentions Kraft may have towards Cadbury's workforce, the sad truth is there will be an irresistible imperative to pay down their debt, and this raises real fears for jobs and investment in this country.
"There are huge lessons to be learned from this takeover for UK business. Short-term City interests and institutional shareholders have dictated this process from the outset with little thought to the impact this sale will have on jobs, the supply chain or Cadbury's future. Unless our takeover regulations are changed, there is nothing the government or employees can do to prevent this happening again to another UK company.”