Essay Example: The Takeover of Cadbury by Kraft

The process of taking over Cadbury was a tough time for Kraft Foods Inc. because it faced stiff resistance for several months. Acquisition of Britain's Cadbury Plc. Sparked a hot debate about the aggressive alien bidders, and this led to an overhaul of takeover regulations in the United Kingdom. There was a war of disagreement between Rosenfeld and Cadbury chairman Roger Carr which continued for several months. Upon approval of the deal, various industry observers highly questioned the value of the takeover and the reason why Kraft wanted to acquire Cadbury that much. The agreed offer price was that each shareholder in Cadbury would receive 840 pence per share and special dividends of 10 pence per share would be authorized to be paid to the shareholder. In total, each shareholder in Cadbury would receive 850 pence per single share owned.

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Advantages of the Takeover

The reason that pushed Kraft to acquire Cadbury was the need to increase the value of the company and its revenue in the long term. Being the market leader in the United Kingdom with a large customer base and having multinational operations in both developing and developed countries made Cadbury a good target for Kraft. The need to tap and exploit markets to add success to Kraft's name led to the desire to acquire Cadbury since it was dominating such markets and Kraft had a low market share. The strong performance of Cadbury in the course of the economic crisis and increased growth is what attracted Kraft and led to the proposal of the takeover. Participation in the global markets was the reason for the increased growth of Cadbury (Sharland, 2019). The company's financial overview was successful, and this made Cadbury believe that they can remain as independent company which led to the dismissal of Kraft's initial proposal. The two companies finally agreed, and Kraft managed to acquire Cadbury in a very hostile bid. The acquisition would result in an increased level of revenue synergy, which would lead to a rise in the earnings per share of Kraft.

Acquiring Cadbury would better position Kraft in competing with its competitors by increasing the market share, especially in Britain. The robust geographical networks Cadbury had in Asia would be significant benefits to be enjoyed by Kraft in the increasing of its market share and growth. Cadbury would also benefit from the takeover because it was a chance to do away with the fear of vulnerability of a hostile takeover since the split with its United States business of soft drinks. The agreement of the acquisition appeared to be a wise decision made by Cadbury because it would expand both companies globally. Kraft board of management led by Irene Rosenfeld assured that the company much respected Cadbury's brand, distinguished history and employees and that the performance of employees of Cadbury would still be excellent in the new environment. Irene Rosenfeld also assured that the contractual rights the employees had in Cadbury would remain the same under the new agreement. These are the promises made by Kraft when settling the takeover agreement but turned out to be hard to honor the commitment after the acquisition.

Disadvantages of the Takeover

Though the takeover came along with many benefits to be enjoyed, there was a rise in ethical issues and various challenges. These are mainly employee redundancy and excess debt issues. The high offer price by Kraft to Cadbury shareholders led to Kraft selling off its pizza plant to obtain funds to facilitate the takeover. After the acquisition, Kraft was left highly in debt because most of the funds used to pay the Cadbury shareholders were borrowed from outside sources. In the process of cost reduction to pay its debts and facilitate efficient operations, hundreds of employees would lose their jobs. This is contrary to the assurance made by Irene Rosenfeld to the employees of Cadbury. To make the matter worse, Kraft did not give out any formal warranty to protect the jobs of the employees in the United Kingdom. It is a fact well known that every time a company is after cost reduction, employees and job conditions will have to suffer.

Despite the efforts by the British government to stop the takeover because it was against the county's takeover rules, the shareholders of Cadbury overruled it. Gordon Brown had also insisted against the acquisition and advised Cadbury not to be taken over by a foreign company because it leads to employment redundancy (Anwar, 2019). However, in spite of all those efforts to stop an alien from acquiring Cadbury, the shareholders were determined to give the company away. In such a situation, even if job conditions worsen and employees rendered redundant, it will not have any effect on the rich in the company or the major shareholders. For instance, if Roger Carr, the chairman of Cadbury, gets fired, he would leave the company with his $30 million. This is clear evidence that it is neither the shareholders nor the critical stakeholders in the company who suffers but it is the employees and the low managers who feel the effects of such an action. There was a need to raise concern and ask significant questions on the intentions of Kraft because the company had a track record of cutting and moving production to foreign countries.

Production in the United Kingdom was not guaranteed in the long run which was a sad thing for the UK as a country and to the manufacturing industry. Employees of the two companies were full of uncertainty about the large company's direction, and they feared to lose their titles and positions as a result of the enormous structure. From the interviews conducted, the employees said that they were also not involved in making the large company's decision which discouraged them. One interviewed member of staff in his opinion said that nobody had the idea of what was happening, but they were sure that it would not be a good thing. Kraft's financial position was continually going down because of the disposal of assets including the pizza manufacturing plant which was sold to facilitate the takeover.

Method of Acquisition

The way of acquisition adopted by Kraft was hostile where the big organization becomes aggressive in a small company to buy the shares of the small company. It is a sure method of achieving company growth. This is what happened with Kraft acquiring Cadbury, but in this takeover, the goal of achieving company growth was not accomplished because of the low initial bid price. Kraft was forced to increase the bid price to impress the shareholders of Cadbury to a point they could not resist. Some of Kraft's shareholders such as Warren Buffet were against the idea of increasing the offer price (Nyombi, Mortimer & Lewis, 2015). The reason is that they felt that Cadbury was being overpaid and its products were of no need in the long term development of Kraft's portfolio.

Warren Buffet, as one of the shareholders in Kraft with substantial shareholding, demonstrated his desire to stop the occurrence of the takeover. Whenever there is an acquisition of two multinational companies with the acquirer burdened with a high level of debt, the chances of the organization failing are very high, mainly because of the conflicts in the operation plans. This was the case in this takeover, and such matters were not discussed during the agreement. The parties involved, especially the deal makers and other advisers were more focused on making money and earning commission and did not care about the success or failure of the deal. As a result, the employees suffered where most of them were laid off.

Post-Merger Analysis of Cadbury Kraft

Staff issues emerged as the culture of work changed in the newly formed company. The performance and morals of the employees dropped as a result of these changes and trust issues with management. There was increased uncertainty on the benefits and rights of the employees under the United States laws. De-motivation among the staff resulted in low morale which in turn led to a reduction of productivity and hence small profits. Employees were stressed because of the increased conflicts, insecurity, and future uncertainty where some of them resigned from the organization. Cadbury management was also concerned about the future of the company which raised anxiety and increased insecurity (Pendleton, 2016). As a result of these issues, there was lack of trust, and Cadbury's brand was faced with a risk of declining.

The effects of the takeover were evident after the merger, and this was after the closure of the Somerdale factory which rendered four hundred Cadbury workers redundant despite the promise made by Kraft to keep the chocolate firm open. This was a challenge to Kraft in restoring its reputation since the company had already lost trust in the United Kingdom. The tension was experienced at all levels by Cadbury workers from the top division to the factory level. Unlike in Cadbury where staff would talk with Chairman Roger Carr and chief executive Todd Stitzer, in Kraft, the case was different because one could go for many weeks before seeing Rosenfeld. Cadbury employees were used to working in a decentralized environment and the efforts made by Kraft to make them fit in the highly structured US Company scared them off. Kraft was also under pressure to deliver results, and in the process, various problems emerged due to the cultural differences. All these problems were as a result of decisions made by investors whose motivation was derived from the short-term gains of the takeover rather than considering the long-term interest of the company.

Effects of Kraft's Decisions

The introduction of significant structural changes in the newly formed company and closure of Cadbury's plant is the main reason for redundancy. Kraft is to be blamed for the actions of closing the Somerdale plant because it misled the Cadbury employees who were promised to remain in their jobs. Kraft had made a promise during the agreement to maintain the factory in operation, and the closure appeared to be deliberate meaning that the assurance was only to facilitate the deal to happen. The risk of Cadbury's employees losing their jobs continued to rise as the new management was no longer trusted. Closure of the plant was a wrong decision made by Kraft because it resulted in severe effects especially on Cadbury's employees and raised the need to worry to all the workforce of Cadbury. Considering that the takeover was not welcomed in British and it faced strong rejection where protestors demonstrated to stop it, it came out that though the deal happened, Kraft would not fulfill the promises.

The decision made by Kraft was very disappointing, and it was a confirmation of the worry of the people who felt that the takeover would result in redundancy. Though Kraft claimed to have held talks with the senior management of Cadbury, reversing the decision of closing down the plant was not there because the company said the plans were advanced. Kraft never considered Cadbury employees in the making of the conclusion of shutting down the plant (Fernandes, Gupta & Vidyasagar, 2016). Cadbury's workforce in Somerdale was on a roller coaster not knowing what is happening or going to happen and the closure of the plant was a shock to them. They thought Kraft would consider them, but as said by Rosenfeld the decision was irreversible, and the employees' hopes were crushed. Efforts were made to push Kraft to assure workers on jobs especially by Lord Mandelson who was the business minister.

Ownership of Cadbury seemed not to be a benefit to the United Kingdom because the decision made was to favor Kraft and the United Kingdom jobs were at high risk. The result was increased insecurity of investment, pensions, jobs and the brand.