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


Memorandum submitted by Unite the Union

TAKEOVER REFORM[5]

A MERGERS AND TAKEOVERS COMMISSION TO ENSURE THE LONG-TERM INTEREST OF THE TARGET COMPANY

  Currently in the UK no one involved in a bid is required to take account of the long-term interest of the target company including stakeholders and the wider interest of society. The outcome of the bid is decided by shareholders alone depending on the price of shares. Whilst shareholders want the highest price for shares, this can be directly against the company's interest—particularly if it means being saddled with more debt.

  A Takeover Commission would assess whether the bid is likely to enhance—or indeed damage—the target company's economic and productive capacity in the long-term. Assessment could include for example impact on investment, employment, R&D, training, the economic case for the bid, comparisons of financial projections, and levels of debt and repayment schedules.

PROTECTION OF WORKERS' ECONOMIC INTERESTS IN THE CONTEXT OF A BID

  Currently there is no obligation to consult and the protection of workers terms and conditions afforded by TUPE does not apply. Thus we need:

    — an extension of TUPE[6] protections to cover mergers and takeovers by share transfer; and

    — information and consultation must include full disclosure of business plans and all other relevant information pertaining to the bid and meaningful consultation on potential impact on employees.

  Because a company may hide behind the Takeover Code we need:

    — the right for workers' representatives to negotiate protection of investment, jobs and terms and conditions.

  Currently others can act to protect their interests from added risk of debt eg banks charging higher interest rates, pension funds—but not workers.

REFORM OF SHAREHOLDER RIGHTS

  Reform of shareholder rights are needed so that only long-term shareholders who have owned shares for a year at the time that the bid is announced are able to vote on a takeover. Short-term share traders who buy shares solely to profit from a takeover process should not have a say. Lord Mandelson's recent speech is a step in the right direction as, of course, directors should be "stewards rather than just auctioneers". A takeover bid should require at least a 2/3 majority shareholder agreement at a properly constituted EGM or AGM. This would also enable institutional investors to be held to account by their beneficiaries for their position on takeover bids.

EXAMPLES OF DIFFERENT APPROACHES TO TAKEOVERS ELSEWHERE

    — Germany

    Driven by concerns about predatory bids, in early 2009 Germany introduced new rules which can limit foreign ownership to a 25% stake. In addition Germany also has co-determination whereby management are appointed and supervised by a Supervisory Board which may consist of one third employee representatives.

    — Holland and Belgium

    Under law, companies can have articles of association that make it more difficult for a predatory bid.

    — France

    In 2005, following concerns about a PepsiCo takeover of Danone, the French Government introduced a law requiring that an acquisition in a strategic sector is subject to prior approval by the Finance Minister. Other measures make a company less vulnerable to a hostile bid, for example, double voting rights for long term shareholders.

WHAT UNITE WANTS FROM KRAFT:

    — Investment in the world-class Cadbury business.

    — An urgent meeting at the highest level of Kraft management with CEO, Irene Rosenfeld with full disclosure of their business plan for each site in the UK and Ireland.

    — Full explanation of why they made the statement they did about the future of Somerdale and misled the workers—and the public—despite being repeatedly urged not to do so from September 2009 because of the closure plans being so far advanced.

    — Guarantees for the future of all UK and Ireland sites, including:

    — No site closures in UK and Ireland for five years.

    — A guarantee of no compulsory redundancies in the UK and Ireland for five years.

    — A guarantee of no erosion of terms and conditions for five years.

    — A guarantee of no diminution to pension benefits or increase in contributions for five years and a commitment that the company will fund any pension deficit.

    — Full disclosure of all business and investment plans for each site and product category.

  Unite believes that these are all reasonable expectations of a company of the size and resources of Kraft and would demonstrate a commitment to the former Cadbury workforce as well as providing reassurance for those workers that they won't pay for the takeover with their jobs and conditions.

16 March 2010







5   This draws on TUC work on Takeovers and mergers. Back

6   TUPE requires information and consultation of the employees' representatives on the potential implications of the takeover to terms and conditions of employment; protection of employees' existing terms and conditions of employment the new employer can only vary them in limited circumstances; dismissals due solely or principally to the transfer will automatically be unfair unless the employer can show there was an economic, technical or organisational reason for the dismissal. Back


 
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