Ethical Performance
inside intelligence for responsible business


Kraft may have good intentions, but its buyout raises questions

February 2010

Will Kraft’s takeover of Cadbury damage the British company’s corporate responsibility profile? Who can be sure?
It would be naive to accept Kraft’s early assurances on this point, if only because the history of takeovers is strewn with broken promises. Kraft argues that it would be folly to buy Cadbury and then damage the brand. But events may overtake both parties, not least because of Kraft’s need to finance the £7billion debt incurred to buy the company.

Cadbury, however, is no Body Shop, just as Kraft is no Exxon Mobil. Neither company has set the CSR world alight. Much has been made of Cadbury’s Quaker roots, but it is difficult for anyone outside the company to discern any remains. Progress has been made at Cadbury on promoting fair trade, but that has only been recently. Conversely, while Kraft is hardly at the forefront of corporate responsibility thinking, it is no laggard either. It has made strides, too, on ethical trading, and has worked well with the Rainforest Alliance.

Given these middling track records, this does not appear to be a case akin to the acquisition of Ben & Jerry’s by Unilever. The debate about the Cadbury takeover, therefore, might better be focused not on whether Kraft will turn back the ethical clock, but on whether the takeover will actually benefit society.

By all accounts Cadbury is a healthy, well-run company, even if it has been forced to shed jobs in the recent past. So what benefit does this deal offer anyone beyond the shareholders, bankers and lawyers who will make money from the transaction itself? Will customers, suppliers, local communities and other stakeholders come out better as a result? It is difficult to envisage this, even if the worst predictions of Kraft-led asset stripping are not borne out.

Takeovers of weak businesses by strong ones usually serve some economic and social purpose, but takeovers for the sake of it often do not. To see evidence of this, one need look no farther than RBS’s disastrous and unnecessary absorption of ABN Amro, or the problems that Manchester United have had since the leveraged buyout by the Glazer family.

Over the past 30 years, takeovers have come to be seen in many quarters as a ‘good thing’. Maybe that view should now be re-examined. It was revealing to see the UK business secretary Peter Mandelson struggling in vain to sound as if he could have any influence over the Kraft takeover or the events that follow it. He cannot. Governments in some countries still reserve powers that can prevent such big deals taking place. Perhaps the less interventionist administrations in the UK and US should look at moving down the same path.

Peter Mason | Global | Acquisitions

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