A Further Word on Cadbury

The takeover of British confectioner Cadbury, with its long and honourable history in British industry, from its Quaker origins to its death throes earlier this year, has been featured as the main topic of two posts on this site, and mentioned in passing on five others. It is a compulsive story which celebrates the satisfaction of greed, the naïve stupidity of ideologically driven government, the destruction of Britain’s real economy and its real jobs, and the fatalistic acceptance of all this by the population at large.

Driven, as is so much else, by the fraudulent free market shareholder primacy dogma, the takeover of Cadbury achieved immediate gains for the shareholders and loss of security for everyone else, particularly including employees. The directors, whose legal responsibility it is to pursue the long term best interests of the company, accepted the bribe to dispose of it. Chief Executive, Todd Stitzer, was estimated to have received around £12million for agreeing the sale (a year’s salary of £985,000, a bonus of almost £2million and the right to cash in shares worth £8.6million).

Not only does the 2006 Companies Act specify director’s responsibility to have regard to employee interests (among others), but section 175 is most particular that directors must avoid any direct or indirect interest that might conflict with the interests of the company. It would appear that receiving £12million for selling the company down the river doesn’t count as a conflict of interest.

Previous posts have asked why it is OK to ignore the Companies Act, and have pointed out the likely long term effect of changes of ownership, such as Cadbury’s, with strategic control moving overseas. If Kraft follow the highly profitable example of Nestlé with their acquisition of Rowntree, UK based Cadbury employees would do well to look elsewhere for jobs.

This week’s news of Cadbury concerns the company’s restructuring to make the UK business a subsidiary of a newly created Swiss holding company. This structure has been commonly used, after successful raids on British firms, to avoid UK taxation, a perfectly legal, and predictable, outcome of takeovers such as Cadbury’s, but one which is obviously against the national interest.

British firms need protection against hostile takeover bids. Almost everywhere else, firms have some protection, either by employee representation on supervisory boards, or by substantial cross shareholdings which effectively lock out destructive takeovers. But in Britain, no distinction is made between the ownership rights of the committed long term shareholder and the speculative raider who seeks to precipitate bids so as to gain from the post-bid auction driving up the share price. The distinction is vital to firms in the real economy, and is one the government could easily achieve. Similarly beneficial and achievable, would be giving a critical vote on changes of ownership to that other long term constituency, the employees.

One thought on “A Further Word on Cadbury”

  1. An excellent blog… I’d suggest as well 2 other areas for public policy reform:

    1. reinserting a genuine public interest test so that governments can actually intervene in such cases, as in Canada where the government has recently blocked the takeover of a major mining firm on public interest grounds. Lord Mandelson could bluff all he wanted but the sad fact was that he had no authority under law to intervene after the 2002 Enterprise Act stripped this away except on on national security and media ownership grounds;

    2. changing the way takeovers actualy work – this could include: stripping short term speculative investors of the right to vote in takeover situations; and raising the takeover approval bar to 75%;

    3. looking at the tax system to reward long term investors and penalise short term speculators like the ‘arbs’ who piled into Cadbury shares seeing it as a one way bet.

    keep up the good work.

    Professor David Bailey
    Coventry University Business School


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