Wednesday, 20 January 2010

Cream egg on our faces

I have hesitated to blog about Cadbury because, frankly, I haven't been able to think of anything original to say.

When I first heard of the Kraft bid my view was that this was a done deal as long as Kraft came up with the right number. For the City, sentimentality about saving a great British institution was never, ever likely to come into it. The stumbling block has been Kraft's initial part shares, part cash bid which was spurned by institutional investors and the Cadbury management.

The institutions are not fools, they know that most M&A actually destroys shareholder value. Also they would be investing in a US-listed company at at time when the US economy is, at best, in recovery. The message, loud and clear, was "if you want this company you are going to have pay cash, we want no part of the future."

Have Kraft paid too much? I'm not close enough to the business plans of either company to make that judgement but it is interesting that neither Hershey nor Nestle have come in as a White Knight to rescue Cadbury. What is certain is that Kraft will now have to extract some serious 'synergies' from this deal (for synergies read cost-cutting) in order to make it work.

There is another wider issue here. As I reflected on this last night I couldn't help but wonder what would have happened if the boot was on the other foot, if Cadbury had bid for Kraft or Hershey? When Dubai Ports tried to take over six port management operations in the US four years ago an unholy alliance of Conservative Republicans screaming "threat to national security" and trade union Democrats screaming "threat to jobs" defeated the deal in Congress. American legislators may not have been able to make the national security argument over chocolate, but you can bet they would have come up with some reason why it was in American interests to keep these companies in the homeland.

For that matter what would the French response have been if BPB had attempted to take over St Gobain instead of the other way round? The French have long taken a very protectionist view of foreign corporate raiders, famously declaring that yoghurt was a "strategic national asset" when a bid came in for Danone.

Contrast this with the UK where all of our listed companies have giant 'For Sale' signs hanging over them. It is precisely this situation which has led to many of our major energy generators, such as British Energy, being owned by the French or Germans. If that is not a threat to (energy) security then I don't know what is.

The question we now have to ask ourselves in this country is, how much longer are we willing to let major British companies be sold off because the City loves a deal?


Post a Comment