#52 Transnational Takeovert Alert: Kraft-Cadbury battle almost over.
As has been reported, the Kraft-Cadbury takeover battle is almost over. After Kraft has upped its offer, the board of British chocolatier Cadbury has approved the takeover. Only very few voices remain opposed to the deal now, including its founder’s, George Cadbury’s great-granddaughter, Felicity Loudon. In an interview she said that Kraft had no idea what Cadbury really is about and doesn’t want it to become the latest in a row of British companies being taken over by foreign owners (including Rolls Royce being owned by BMW of Germany, Manchester United owned by US investor Malcolm Glazer or Rowntree (maker of After Eight) being owned by Nestle of Switzerland).
March 19, 2017 @ 3:23 pm
In January 2010, at the time the posting was published on this webpage, only few people could imagine the impact Kraft’s £11.5 billion hostile takeover of Cadbury (Wallop, 2016) would have on the confectionary business – and the British pride. Little did Cadbury’s management know that Kraft’s plan was to split it in two business units to eliminate its conglomerate nature and become two more focused businesses, thereby creating more value for its shareholders (Moeller, 2012).
Yes, nearly every acquisition leads to job cuts and unpleasant experiences mainly for the party being acquired however, under general circumstances an acquisition like this one with well known brands and cross-border deals would have made it just briefly to the headlines. However in this case, it was the lead business story for at least four months (Moeller, 2012).
Cadbury actively resisted the Kraft takeover with a strong defensive advisory team led by Sir Roger Carr, Cadbury’s chairman. Any other confectionary company (Nestle, Ferrero, Hershey, etc) would have been preferred as the buyer. In addition, Lord Mandelson, then the UK’s business secretary, publicly declared that the government would oppose any buyer who failed to “respect” the historic confectioner (Moeller, 2012).
As a result, the takeover of Cadbury by US based Kraft prompted a change of the rules governing how foreign firms could buy UK companies as many felt that it had become too easy for foreign firms to aquire UK rivals. The Panel of Takeovers and Mergers reviewed the laws and in September 2011 changes were made to the Takeover Code. Broadly it strengthened the hand of target companies, and demanded more information from bidders about their intentions after the purchase, particularly on areas like job cuts.
Why did this acquisition affect so many levels of the British society? What did Kraft do wrong to prompt a change in law? Wasn’t it just one of many acquisitions? Why did this takeover offend an entire nation and led to a revamp in legislation?
Was it because…
… a great British icon, an important brand in the history and evolution of British business, was no longer British at all? (Fearn, 2016)
… Kraft did not value the tradition of the brand and did not keep its promises? Just a week after promising to keep Cadbury’s Somerdale factory, near Bristol, Kraft backtracked and said it would close the plant. Kraft later defended itself by saying that when it had more information it realized it was not “feasible to keep Somerdale open”. (Morris 2014)
… Kraft amended some of the well-liked, long established products and recipes which felt simply disrespectful to loyal customers?
… this iconic brand was used to fulfill a single, capitalist motive: to sell more confectionary and make more money?
… Cadbury was no longer working with Fairtrade under Kraft ownership? (Fearn, 2016)
… some of the production was moved away to Poland? (Wallop, 2016)
… Christmas gifts to pensioners were axed? Until Kraft took over up to 14,000 long-term former employees were given a gift of chocolates at Christmas. Not much, but a small recognition of their years of service (Wallop, 2016).
A long story short, every little one of the above may have been seen critical however, the sum of things as well as the transformation from an iconic British brand to a US owned money-making item, stripped from all its customers believed in, was simply too much for the British. A brand well established in the heart of its customers (if not an entire nation) would have required a subtle and quiet takeover paying tribute to what the brand and its products stand for, not stripping it down to a money-generating tool to set foot into new markets. Yes, production in Poland was most likely cheaper than in the UK however, the product strongly linked to the UK instantly lost its soul when it was moved away from the UK.
On paper Kraft did (nearly) everything right. They selected a target market which was the UK and also emerging markets Kraft was not yet strong but Cadbury was. They had their entry figured out, adapted the product to fit the markets and shareholders interest – however forgot about the heart of Cadbury’s main customers.
Kraft was ready to access another market through this acquisition and Cadbury’s products would have been ready for new markets however, the core of the business deal that left a bitter taste in the British’ mouths was bold and left many in the home market angry and disappointed.
Kraft did their home work. On paper the deal looked good. They had corporate and product readiness aligned, a strategy to increase shareholder value, sound market selection and the motivation to pull it off – however, they forgot about the emotional aspect of the company and brand they acquired in a hostile takeover. And that’s where the deal went wrong…
References:
Scott Moeller (January 9, 2012) Case study: Kraft’s takeover of Cadbury. Financial Times online. Accessed 11.03.2017 https://www.ft.com/content/1cb06d30-332f-11e1-a51e-00144feabdc0
Harry Wallop (21 March 2016) The many ways Cadbury is losing its magic. The Telegraph. Accessed 11.03.2017 http://www.telegraph.co.uk/food-and-drink/features/the-many-ways-cadbury-is-losing-its-magic/
Ben Morris (2 May 2014) The Cadbury deal: How it changed takeovers. Accessed 11.03.2017 http://www.bbc.com/news/business-27258143
Hannah Fearn (29 November 2016) In a final betrayal of the Cadbury brand, Kraft has quietly abandoned its promise to stick with Fairtrade. Accessed 11.03.2017 http://www.independent.co.uk/voices/cadburys-chocolate-fairtrade-fair-trade-mark-farmers-kraft-american-brand-abandoned-promise-a7445826.html
http://www.huffingtonpost.co.uk/entry/cadbury-takeover-by-mondelez-international-investigated-six-years-on-by-dispatches_uk_56ed8f91e4b030d552ef63c1
http://www.nytimes.com/2010/01/20/business/global/20kraft.html
http://www.accaglobal.com/ng/en/student/sa/features/sweet-deal.html
https://www.ukessays.com/essays/marketing/reasons-and-implications-of-the-cadbury-kraft-merger-marketing-essay.php
http://www.jonathonporritt.com/blog/lesson-krafts-cadbury-takeover
https://www.translegal.com/transactions/kraft-to-take-over-cadbury
https://prezi.com/xhqhhajdt9ll/case-study-krafts-hostile-takeover-of-cadbury/
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/228969/7915.pdf