Football and Chocolate….
Cadbury has confirmed job losses are ‘inevitable’ following Kraft’s £11.5bn takeover. However, don’t worry; the deal represents ‘good value’ for shareholders according to Cadbury chairman Robert Carr and after-all it is their interests he is ‘paid to represent’.
Bankers meanwhile are set for a windfall from the deal. Advisers could pocket as much as £120 million in fees. So, surely everybody is happy? Well, probably not those who face redundancy. Gordon Brown has rightly warned Kraft not to cut jobs and Lord Mandleson has called for ‘long-termism’ and warned the government will scrutinise any deal. Kraft has not acquired Cadbury out of the goodness of its heart or ‘respect for its heritage’; it has done so to access foreign markets especially India;
Kraft Foods’ finally gets a clean sweep of the only big emerging market it did not yet have a presence in – India.
The fears for jobs at Cadbury’s are well-founded and could fall regardless of the efficiency of a given site because purely and simply Kraft will have to pay off the debt that it has incurred in its takeover somehow. As I write Manchester United are playing Manchester City and the world of football offers a salutary lesson for those who think these kind of investors come with a ‘respect for a companies heritage’. Malcolm Glazer’s rulership of United is increasingly being challenged by United fans. Following the 2005 Glazer converted the club into a wholly private company and wove into the deal a device which;
allows the Glazers to take a dividend equal to 50 per cent of net cash profits, as long as gross profits are more than double the interest paid figure. If, as the Glazers forecast in the prospectus, income continues to grow at Old Trafford, over the seven-year life of the bond the total dividend could reach more than £140m.
Similarly to Kraft; the Glazers went into debt to buy United and they have succeeded in dragging United down with them; performing what Jim White in the Daily Telegraph calls the ‘most amazing piece of reverse alchamey’. The Glazers could still walk away from United showing a profit but the club itself will probably be left in crippling debt which can’t even by properly traced to its source.
It is to be hoped for Cadbury’s sake that it does not suffer a similar fate. Lord Mandleson is however a bit late to call for ‘long termism’. All his and Gordon Browns remarks show is that the government has little power to actually protect jobs during a takeover or ensure ‘long-termism’. Wouldn’t it be radical and welcome for a Labour government to state clearly it will empower the government over the unaccountable boardrooms and advisers so it can act in the ‘long-term’ interest and truly protect jobs?