Is Kraft working for Cadbury? - Business, Innovation and Skills Committee Contents


1  Introduction

Background

1.  In February 2010, Kraft acquired Cadbury for a purchase price of £11.5 billion. The acquisition was controversial for two reasons. Firstly, a long-established and highly respected British company was to be the subject of a hostile takeover by an American corporation which had previously been criticised for its takeover of another UK company, Terry's of York. The second reason was that, in what appeared to be a re-run of the Terry's story on a considerably shorter timescale, Kraft initially indicated that it would reverse Cadbury's decision to close the historic Somerdale factory, but then a week after the takeover reversed that decision.

2.  In the early part of 2010, our predecessor Committee conducted an inquiry into the circumstances of the takeover. That Committee's Report considered the decision to close the Somerdale plant along with Kraft's overall plans with regard to Cadbury jobs, employment conditions, factories, brands, strategic growth, research and social responsibility. In the course of the inquiry Kraft gave a number of undertakings, including most notably a commitment that there would be no further compulsory redundancies among manufacturing employees and no additional manufacturing facilities closures, in each case for at least two years.[1] The other undertakings were broadly as follows:

  • To preserve the identity of the Cadbury brand and the company,[2] and to manage the brands, the assets and the people out of the UK;[3]
  • To continue to base Cadbury marketing and sales in the UK;[4]
  • To continue to produce, in the UK, Cadbury's Dairy Milk[5] and Cadbury's other products in UK production at takeover;[6]
  • To maintain existing staff terms and conditions;[7]
  • That existing pension arrangements would be honoured;[8]
  • To engage in genuine union consultation;[9]
  • That R&D facilities would be maintained;[10]
  • To move Green & Black's to Fair Trade by the end of 2011;[11]
  • To continue Cadbury Foundation funding;[12]
  • To continue Cadbury's community and charitable activities;[13]
  • To stand by Cadbury's London Olympics sponsorship.[14]

3.  The previous Committee published its report on 6 April 2010.[15] Among the principal conclusions and recommendations were:

  • Kraft's Chief Executive Officer, Irene Rosenfeld, should have appeared before the Committee, not least because the statements regarding Somerdale's future were made and announced by her;
  • Kraft acted irresponsibly and unwisely in making its statement that it believed it could keep Somerdale open and the statement damaged Kraft's reputation in the United Kingdom and soured its relationship with Cadbury employees such that it would have to invest significant time and effort in restoring both;
  • notwithstanding the undertakings given, clearer and/or more extensive commitments in several areas such as in relation to retaining specific plants and maintaining numbers of R&D staff would have been welcome;
  • backtracking from the undertakings would amount to a serious breach of trust;
  • there were deep concerns over the possibility of the Cadbury takeover being motivated by a desire among institutional investors for short-term profits;
  • a review of takeover regulations would be welcome.

4.  The manner in which Kraft made and subsequently retracted its pronouncements on the Somerdale plant was the subject of an investigation by the Takeover Panel. The Panel published its findings in May 2010, and censured Kraft for its conduct in relation to the planned Somerdale closure. The Takeover Panel also announced that it would consult on proposals to reform the Takeover Code in the light of various objections to the way takeovers in the UK have developed.

5.  In December 2010, we decided to review the extent to which Kraft's undertakings were being complied with one year after the takeover and to evaluate Kraft's strategic plans for the Cadbury business now that integration of the two organisations was fully under way.

6.  Despite our wish to interview Irene Rosenfeld, the Kraft Chairman and Chief Executive Officer (the circumstances of which are explained later in this report), we had to content ourselves with hearing from three Kraft executives, albeit in senior roles: Marc Firestone, Executive Vice President, Corporate & Legal Affairs, Trevor Bond, President of Kraft Foods Europe, and Nick Bunker, President of Kraft Foods UK & Ireland. They gave testimony in an oral evidence session on 15 March 2011. Prior to that, Kraft provided a progress report which has been published by way of written evidence on the Committee website. We intend to consider the broader position on takeovers later in the year, when the Government has published further plans for reform and the Takeover Panel has received the results of its consultation on changes to the Code.


1   Q 297, 16 March 2010 Back

2   Qq 174 and 176, ibid. Back

3   Q 175, ibid. Back

4   Q 215, ibidBack

5   Qq 177 and 179, ibid. Back

6   Q 182, ibid. But this was qualified by the proviso that there were no plans to move production as of March 2010Back

7   The bid materials said: "[W]e confirm that the existing contractual employment rights, including pension rights, of all employees of Cadbury would be fully safeguarded." See also Q 321, ibid. Back

8   Q 322, ibid. Back

9   Qq 305 and 324, ibid. Back

10   Q 298, ibid. This applied to Reading, and was qualified by a proviso that the commitment was not in perpetuity. There was a statement of intention to invest in Bournville at Q 193. Back

11   Q 327, ibid. Back

12   Q 334, ibid. Back

13   Qq 338 and 339, ibid. Back

14   Qq 186 and 187, ibid. Back

15   Mergers, acquisitions and takeovers: the takeover of Cadbury by Kraft, Ninth Report of Session 2009-2010 Back


 
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Prepared 23 May 2011