Saddened, But Not Surprised, By Kraft's Betrayal Of Trust

Despite promises made by Kraft in the process of their hostile takeover of Cadburys, yesterday they announced that they would be shedding 500 manufacturing jobs in the UK. It is clear that their promises stood for nothing. The promises of the Labour Government have counted for nothing and it is British workers who are suffering.

I made my misgivings about this takeover clear a few weeks ago. The deal was called a “bad deal” by Warren Buffett, criticised across the political spectrum and resulted in falls in the share price of both Kraft and Cadbury. My main misgivings were based around the fact that:

• Kraft are heavily in debt to the tune of £18.6 billion, more than double the level of debt in 2006. To fund the takeover, Kraft have had to increase their debt still further, with Kraft’s debt to earnings ratio increasing to nearly four times. This level of debt is not sustainable and it is likely that Cadburys UK production will bear the brunt of Kraft’s attempts to reduce their debt;
• Cadburys was a lean, well run, profitable company, with a long history of respecting workers’ rights. Kraft is a global conglomerate with a massive pool of debt and a long history of asset stripping. It does concern me that lean, well run companies are so often the targets of global conglomerates;
• The UK economy has, for too long been unbalanced in favour – with too much focus being placed on the financial sector in the South East of England and not enough being placed on manufacturing. We need to rebalance the economy. The sale of one of Britain’s great manufacturing names is hardly a statement of intent;
• The power of short term hedge funds and institutional shareholders in the takeover process, who have a vote but no real interest in the long term health of the company. Long term manufacturing vitality should not be decided by short term interests in the City;
• The takeover was funded by a loan provided by a bank owned by the British taxpayer

Despite the protestations of free market fundamentalists, I’m cannot see how the Cadburys takeover has been at all positive for Cadburys workers or the long term health and vitality of the British economy. All of Lord Mandelson’s assurances have counted for nothing.

It is surely time that we re-thought our ethos around takeovers and the power of corporate finance. There is a strong case for ‘public interest’ tests when it comes to corporate takeovers, along with the need to seek proper assurances in terms of jobs and social impact. Kraft’s sudden about turn was sadly predictable. Cadburys workers have been badly let down by a toothless Government. It is about time we made sure that the same is not allowed to happen again.