Mergers, acquisitions and takeovers: the takeover of Cadbury by Kraft - Business, Innovation and Skills Committee Contents

3  Kraft's undertakings in respect of Cadbury

21. In our oral evidence session on 16 March, the Kraft management team set out its plans for the future of Cadbury. In this section we set out the undertakings given by that team. Most of those undertakings we can only note at this stage, Kraft's commitment to them will only be judged over time. However, Kraft's handling of its intentions in respect of Somerdale prohibit us from taking these undertakings at face value which is why we believe that Kraft's undertakings should be monitored by the Department for Business, Innovation and Skills.

Brand Management

22. Trevor Bond, a long-standing Cadbury employee and soon to be given responsibility in Kraft for leading all European markets, confirmed that Cadbury products would continue to be managed from the UK.[25] He also confirmed that Cadbury's brand names would not change under Kraft:

    We have no plans to rename Cadbury Creme Eggs or Cadbury Dairy Milk into anything else; those are great brands that our consumers love, that our factories in the UK produce to a really high standard, and we intend to keep on providing consumers and customers with the products and the brands that they love.[26]

This message was reaffirmed by Marc Firestone:

    It is absolutely our plan to preserve the identity of the brands themselves as well as the identity of the company itself. We have heard questions about Bournville and the flags and the signs and so on. It is absolutely our intention that Cadbury will remain the name on the building; that Cadbury will remain the name on the flag. [27]

23. Trevor Bond also confirmed that Dairy Milk would continue to be produced in the UK and that there were no plans to transfer abroad production of other products currently made in the UK.[28]

24. We note Kraft's undertakings to continue to manage Cadbury from within the UK and that Dairy Milk and Cadbury's other products currently produced in the UK will continue to be produced here.

Undertakings for jobs


25. After announcing that it would not be keeping the Somerdale factory open, Kraft stated that it would honour Cadbury's previous undertakings including terms and conditions given to Somerdale workers affected by the closure. [29] Unite told us that Cadbury's senior management had informed the Union that Kraft would uphold those pledges made to the workforce by Cadbury.[30] Richard Doyle, HR Director, Cadbury, Britain & Ireland of Kraft, noted that as well as the severance packages available to employees, there was a Jobcentre facility on the site available to them and Cadbury had also undertaken a significant amount of on-site retraining for the employees.[31]

26. We note the fact that Kraft will honour Cadbury's undertakings given to the Somerdale workforce.


27. In November 2009 Irene Rosenfeld stated that Kraft's "current plans contemplate that the UK would be a net beneficiary in terms of jobs".[32] However, at the time, neither Unite nor the Government were able to extract any specific assurances or details from Kraft. In our first oral evidence session on 12 January, Jennie Formby, Unite's National Officer for Food and Drink told us:

    We have asked for very specific guarantees. We have said that whatever we may think about Kraft taking over Cadbury and the way Cadbury operates at the moment clearly the people we represent are the workers, so if Kraft says that strategically it is very important and it will grow and develop the business, expand the markets and so on, fine; get on with it, but if that is the case it should have the confidence to give our members guarantees that it will not be making compulsory redundancies, that sites will not be shut, that the pension scheme will be saved, that terms and conditions will be safe and so on. Kraft has said that it cannot give us any such guarantee.[33]

She also told us that both Cadbury and Kraft argued that the Takeover Code prevented them from discussing anything that would be deemed price sensitive, which included details of future plans for the workforce.[34] However, Jack Dromey, Unite's Deputy Secretary General, provided us with examples of where companies engaged in takeovers had sought early positive engagement with the Union:

    We can give you two examples: one was Jaguar Land Rover where the prospective buyers—and there were a number—the union was able to meet with each one of them and talk to each one of them about their intentions for the future and guarantees for the future. Another example is TNT Logistics, when that was disposed of. It is not true that the takeover code stops you from having constructive discussions; it is just that Kraft sought to hide behind the takeover code.[35]

28. Unite also asserted that even after the conclusion of the takeover, there had been little contact between senior management from Kraft and workers:

    Mr Firestone has very recently, but only very recently, visited the Somerdale plant to talk to the shop stewards, but several weeks too late as far as we are concerned and certainly as far as our members are concerned there. Other than that, Kraft executives have been seen walking around the Bournville site.[36]

29. Marc Firestone wished to provide clarity on the future of the Cadbury workforce and confirmed that there would be no compulsory redundancies amongst manufacturing employees for the next two years. He also added there would be no further plant closures in the UK:

    First, I will say that we can commit that for a period of at least two years there will be no further closures of manufacturing facilities in the United Kingdom. I can also commit that, beyond any programmes which I have mentioned which have already been negotiated and announced for at least two years, there will be no further compulsory redundancies of manufacturing employees in the United Kingdom.[37]

30. This commitment only extends to Kraft's employees within manufacturing. Redundancies in Cadbury's finance, legal and communications departments have already been announced,[38] and Marc Firestone was unable to give any further assurances about Kraft's headquarters in Cheltenham. He explained that Kraft would not need multiple facilities for administration and was currently in consultation about its administrative footprint.[39]

31. We are disappointed that while there has been frequent contact between Unite the Union and Kraft's UK human resource team, Kraft's American senior management have yet to engage in any meaningful dialogue with the Union. We believe that it is vital that Kraft's senior management from the US meet representatives from Unite the Union and the workforce as a matter of urgency in order to start to restore trust.

32. We note Kraft's assurances that there will be no further compulsory redundancies amongst manufacturing employees and no additional plant closures in the UK for the next two years. However, a guarantee for a longer period would have been welcome. We strongly believe that it would be in both Kraft's commercial interests as well as the UK's national interest for Kraft to regard the existing manufacturing plants in the UK as long-term investments which require sustained investment to remain competitive and at the leading edge of technology. Theoretically the undertakings given in respect of Dairy Milk guarantee the future not only of Bournville but also of Chirk, near Wrexham and of Marlbrook in Herefordshire, which supply the ingredients. However, we note the lack of a specific guarantee about the future of these two plants and we ask the Government to invite Kraft to provide further clarification of their intentions and to put the reply in the public domain.


33. There have been a number of press reports voicing concern about the future of Cadbury's pensions under Kraft. Before the takeover, Cadbury was undertaking a consultation on pensions.[40] Following the takeover, the Daily Telegraph reported on 5 March 2010 that:

    Kraft Foods is preparing to close the British confectioner's final salary pension scheme to new members, increase contributions from staff and cut up to 150 jobs. Kraft is due to unveil the findings of a long-running consultation into the future of Cadbury's pension scheme later this month. A spokesman for the US company admitted yesterday that the final salary scheme was "more than likely to be closed to new members" as he warned that pension schemes "have to be sustainable".

    Reports in the local media near Cadbury's Bournville base suggested pension contributions could almost double but the spokesman said any potential increases would be gradual: "They will be phased in over time," he said. "They're not going to double overnight." Cadbury is known to have been considering the future of its pension scheme and while a formal consultation was opened in January, talks began some months before. The outcome of the consultation has yet to be formally decided and talks are "ongoing", the spokesman said. [41]

34. In an open letter to members of the Pension Fund, Kraft Foods and the Trustees of the Cadbury Pension Fund stated that:

Kraft Foods would like to take this opportunity to reassure you that the decision by the shareholders to accept Kraft Foods' offer has not undermined the security of your pension and that the Trustees and Kraft Foods are focused on protecting the pensions of all members.[42]

35. Richard Doyle, a long-standing Cadbury employee and now Human Resources Director of Cadbury UK & Ireland within Kraft, is also a trustee of the Pension Fund. He told us that senior management in Kraft had given the Trustees a commitment to supporting pension arrangements, though there may well be ongoing changes to the pension scheme in order to make it affordable:

    Kraft have been very clear that the way in which [the pension fund] will be dealt with and managed will be exactly the same as how Cadbury would have interacted on that, with a very clear commitment to supporting pension arrangements going forward. On the subject of the benefits themselves, we had engaged like the vast majority of UK businesses in looking hard at how we ensure the […] pension arrangements […] are sustainable and affordable in the long term. That does mean that we, Cadbury, have announced some changes and are in the process of consultation [...] Kraft have been very clear in committing to maintaining accrued benefits to date and to supporting the changes which Cadbury had already started to communicate both with the trustees and employees.[43]

36. We both note and welcome Kraft's acceptance of its obligation to support Cadbury's existing pension arrangements.

Research and development

37. Cadbury funds significant scientific research expertise which is based at the University of Reading. The Reading Science Centre comprises Reading Scientific Services Limited (RSSL) and R&D team working for solely Cadbury. When RSSL was established in the late 1980s, its function was to provide technical out-sourced solutions for Cadbury and some other companies. However RSSL now conducts analysis, consultancy, product development and training work more generally for the food and drink, pharmaceutical, healthcare and consumer goods industries. It has also built a strong reputation for its work on allergen management and testing, investigating food contamination and training. RSSL still remains a wholly owned subsidiary of Cadbury.[44] Cadbury also has a chocolate innovation team based in Bournville which focuses on the production of chocolate.

38. Marc Firestone praised Cadbury's R&D capabilities:

    Cadbury has excellent research and development capabilities in the UK and other countries, including at Reading, and we are committed to maintaining Reading. Much of what Reading does is actually for third parties, and it is a fascinating business model where they do work for pharmaceutical companies and non-competing food companies, and I am hopeful that business model remains because it is an excellent way for our own people to gain insights from other industries.[45]

He also expressed his commitment to ensuring that RSSL remain in the UK:

    We are committed to it—I want to be careful because I do not think anybody could ever say "in perpetuity", but from what we have seen so far we certainly intend to maintain that operation, subject to the third party contracts. But, yes, Reading is something we see fitting very well. They do terrific research there, they have a very energetic, enthusiastic group of people, doing all sorts of great work on chocolate and other products which services the worldwide chocolate business for both companies.[46]

39. We note Kraft's commitment to maintain Cadbury's R&D facilities in the UK. We also note Mr Firestone's careful use of words and that there is no specific commitment to the current level of employment and world class skills in R&D at the centres of excellence at both Reading and Bournville. We invite Kraft to reflect on the reputational consequences for their company in the UK of not honouring the spirit of Mr Firestone's assurances and warm words. We ask the Government to invite Kraft to clarify its intentions and to put its response in the public domain.

Cadbury's philanthropy and corporate social responsibility

40. Cadbury's support for the community, its patronage of the Cadbury Foundation and commitment to Fairtrade[47] means that it enjoys an excellent reputation for pursuing goals of corporate social responsibility alongside corporate success. During our evidence session with Kraft we tested Kraft's commitment to those goals.


41. One of Cadbury's most notable achievements in the area of corporate social responsibility in recent years has been to make Dairy Milk a Fairtrade product. In March 2009, Cadbury announced that Dairy Milk was to be certified as Fairtrade in the UK and Northern Ireland. [48] In August 2009 it announced that Dairy Milk would also be Fairtrade in Australia, New Zealand and Canada.[49]

42. Cadbury sourced its cocoa from Fairtrade farmers in Ghana.[50] On its website, Cadbury set out its relationship with the Cadbury Cocoa Partnership:

    In January 2008, the Cadbury Cocoa Partnership was established in partnership with the United Nations Development Programme, local governments, farmers and communities. This ground-breaking partnership aims to secure the economic, social and environmental sustainability of around a million cocoa farmers and their communities in Ghana, India, Indonesia and the Caribbean. Over ten years £45 million will be invested through the partnership to improve farmer incomes, develop communities and build partnerships. In January 2009 Cadbury announced that the Cadbury Cocoa Partnership was now active across 100 Ghanaian communities, marking the 100th anniversary of cocoa trading with Ghana.[51]

43. Kraft confirmed that it would uphold Cadbury's commitments to Fairtrade which were that:

  • Dairy Milk will continue to be Fairtrade in the UK and Northern Ireland and in three more markets, Canada, Australia and New Zealand by early 2010;
  • Green & Black's (which is owned by Cadbury) will move its entire range to Fairtrade by the end of 2011.[52]

In addition, Marc Firestone emphasised Kraft's ongoing commitment to the Cocoa Partnership. He told us that Kraft would "absolutely stand behind" the Cocoa Partnership as well as "all the other existing agreements".[53] He explained that Kraft also had existing commitments with the Rainforest Alliance, a similar body to Fairtrade:

    We have existing commitments and arrangements with Rainforest Alliance and what we have to do is find a time when those could be synchronised. There are long-term supply agreements with both companies, so it is not a matter of switching one to the other, or vice-versa; it is a matter of making sure they are both equally responsive to concerns about the environment, about the workers in the field and about social development.[54]

44. However, Professor Bones told us in January that Cadbury's commitment to Fairtrade went further in terms of social responsibility than Kraft's commitment to the Rainforest Alliance:

    The difference between the two models that strikes me is that Cadbury has a social perspective so its adoption of Fairtrade for Dairy Milk has increased those product sales as a whole by 25% in this country. It has taken Fairtrade from being relatively on the margin to right at the centre; it has added a huge amount of Fairtrade turnover in any category. Fairtrade guarantees a minimum price; the Rainforest Alliance does not but tries to encourage sustainable markets. That is the difference. Both are very creditable approaches. If you look at Cadbury you see it going one step further in terms of its belief about responsibility but some would argue that it is not necessarily a huge step further.[55]

45. We note the commitment by Kraft to continue Cadbury's support for the Cocoa Partnership and uphold Cadbury's undertaking to extend its use of Fairtrade. Any dilution of Cadbury's commitment would reflect very seriously on Kraft's reputation and integrity.


46. A significant part of Cadbury's philanthropic legacy is its support for the Cadbury Foundation which gives grants to projects and partner organisations, mainly in the fields of education and employment.

47. Cadbury provided the following list of objectives regarding community investment:

  • Contribute 1% pre-tax profit for Community Investment year-on-year;
  • Encourage at least 25% of our employees to volunteer in the community;
  • Encourage the inclusion of community objectives in the development of people, brands and reputation; and
  • Build on partnerships to help address social, economic and environmental concerns.[56]

In 2008, Cadbury in the UK contributed £1,225,409 in community investment and achieved an overall goal of contributing 1% pre-tax profit. This contribution included employee time, cash donations, gifts-in-kind and a small amount of management costs.[57]

48. Kraft confirmed that it would uphold Cadbury's existing agreement to support the Cadbury Foundation. Marc Firestone told us that:

    On Friday I confirmed personally to the Foundation that we are confirming their funding. They fund in three-year cycles and they had a pre-existing funding proposal for 2010, 2011, 2012. I personally informed them that we would continue that.[58]

In that vein he told us that Kraft was committed to Cadbury's programme of community involvement:

    What I can definitively commit to is that Cadbury's charitable activities, its community involvement and other things it has been doing for over a hundred years, will absolutely continue and I hope grow.[59]

He went on to highlight the fact that volunteerism was also part of Kraft's ethos, and gave the example of Kraft's week of "volunteerism" last October in which over 10,000 employees took part.[60]

49. We welcome the announcement that Kraft has confirmed the funding arrangements for the Cadbury Foundation for the next three years. We also note Kraft's undertaking to adhere to Cadbury's commitments for community investment. We look forward to seeing how Kraft will maintain and build upon Cadbury's heritage of philanthropy both during the initial three-year period and beyond.


50. The Fry Club started off as a sports and social club for its Somerdale employees and now has over 15 sports and entertainment sections ranging from skittles to football and netball to drama.[61] Its website now reports that "with a period of transition due with the closure of the nearby Cadbury chocolate factory the Fry Club is getting ready to move into a brand new state-of-the-art facility within the next few years". Marc Firestone confirmed that Kraft was fully committed to the Fry Club and that it was working with the community and the council to find the best possible use for the Somerdale site.[62] In addition, Kraft is committed to rebuilding the Fry Club on the Somerdale site.[63]

51. We welcome the commitment given by Kraft to rebuild and maintain the Fry Club at Somerfield.


52. In 2007, Cadbury's total CO2 emissions were around 818,686 tonnes.[64] Cadbury had committed to achieving an absolute reduction in net carbon emissions of 50% by 2020. It was also committed to reducing its packaging and food waste. In the UK and Australia, Cadbury had been working with government-supported projects such as WRAP (the Waste and Resources Action Programme) and had signed up to the Courtauld Commitment in the UK.[65] Supporters of WRAP are committed to use better design to cut packaging waste by 2009, make absolute reductions in packaging waste by 2010 and identify ways to tackle food waste.[66]

53. With regard to reducing CO2 emissions, Kraft stated: "we will maintain the same aggressive intention as Cadbury's target of [reducing net carbon emissions by] 50% by 2020." Kraft also stated that it would uphold Cadbury's commitments to reduce packaging and food waste.[67]

54. We note that Kraft intends to uphold Cadbury's commitments to the environment.


55. The Kraft takeover of Cadbury has been marred particularly by the controversy over the closure of Somerdale and has heightened the feelings of mistrust in which Kraft is held. Kraft now faces a significant challenge to restore its reputation in the United Kingdom. Our evidence from Kraft did, however, give some welcome clarity on Kraft's intentions for brand management, the Cadbury workforce and the many philanthropic activities for which Cadbury is rightly admired. These commitments—which have been personally endorsed in writing to us by Irene Rosenfeld—are now in the public domain, and therefore will be subject to close scrutiny over the next few years. If Kraft is serious about restoring its reputation in the United Kingdom, it is vital that it delivers on all of them. Any back-tracking from these commitments, or any evidence that support management and other functions, especially Cadbury's world class Research and Development, are indeed being transferred to the United States would be a serious breach of trust. We recommend that the Department for Business, Innovation and Skills monitors Kraft's compliance to these commitments. If it is serious about them, Kraft will have nothing to fear from such scrutiny.

25   Q 175 Back

26   Q 174 Back

27   Q 176 Back

28   Q 177, Q 182 Back

29   BBC News, Cadbury's Bristol plant to close, 9 February 2010 Back

30   Q 131 Back

31   Q 290 Back

32   Kraft's Takeover bid document, 7 September 2009 Back

33   Q 53 Back

34   Q 50 Back

35   Q 136 Back

36   Q 123 Back

37   Q 297 Back

38   The Guardian, Unions square up to Kraft to demand pay rise for Cadbury workers, 4 March 2010 Back

39   Qq302-303 Back

40   The Daily Telegraph, Triple blow for Cadbury staff from Kraft deal, 5 March 2010 Back

41   The Daily Telegraph, Triple blow for Cadbury staff from Kraft deal, 5 March 2010 Back

42   Joint letter to members of the Cadbury Pension Fund from Kraft Foods and the Trustees of the Cadbury Pension Fund Back

43   Q 322 Back

44   Food Manufacture, Kraft visits Cadbury's research firm, 8 February 2010 Back

45   Q 297 Back

46   Q 298 Back

47   Fairtrade is a charitable organisation which promotes better prices, decent working conditions, local sustainability, and fair terms of trade for farmers and workers in the developing world. By requiring companies to pay sustainable prices (which must never fall lower than the market price), Fairtrade addresses the injustices of conventional trade, which traditionally discriminates against the poorest, weakest producers. It enables them to improve their position and have more control over their lives. Back

48   The Independent, Cadbury adopts Fairtrade source, 4 March 2009 Back

49   Cadbury's Press Release, Fairtrade Cadbury Dairy Milk goes global as Canada, Australia and New Zealand take Fairtrade further into mainstream, 25 August 2009 Back

50   The Independent, Cadbury adopts Fairtrade source, 4 March 2009 Back

51 Back

52   Qq-326-327 Back

53   Q 330 Back

54   Q 331 Back

55   Q 17 Back

56   Cadbury, Community Investment in the UK 2008 Back

57   Cadbury, Community Investment in the UK 2008 Back

58   Q 334 Back

59   Q 338 Back

60   Q 334 Back

61   Fry club website, Back

62   Q 288 Back

63   BBC News, Cadbury's Bristol plant to close, 9 February 2010 Back

64   Corporate Social and Responsibility Fact sheet 2007-08-environment and climate change Back

65   The Courtauld Commitment is a voluntary agreement aimed at improving resource efficiency and reducing the carbon and wider environmental impact of the grocery retail sector. Back

66   Corporate Social and Responsibility Fact sheet 2007-08-environment and climate change Back

67   Ev 56 Back

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