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, ibid. Back
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 2010. Back
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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