Cadbury: banks are the real winners
Cadbury's defence document against the takeover by Kraft, published at the end of last year, contains the following statement:
"The amount of fees which would become payable to the banks in the event of a transaction being completed with Kraft (or another third party that makes an offer for the company during the offer period) are higher than those payable if no transaction is consummated".
What this means is that Goldman Sachs, Morgan Stanley and UBS - the banks hired to "defend" Cadbury against Kraft's hostile bid - are to be paid more for selling Cadbury to Kraft than for preserving its independence.
So success, as defined in their contracts, is what happened on Tuesday - an agreement that Kraft would buy Cadbury.
Is it any wonder therefore that Cadbury has surrendered its independence? As one City veteran said to me: "you get what you pay for".
The nature of Cadbury's contract with the banks surprised me - especially in view of the rhetoric of Cadbury throughout the takeover battle that it had an exciting and viable future as an independent business.
And I have checked out my intuition that the incentive structure for the banks is a bit odd by talking to a number of City grey beards.
They too were a bit bemused that Goldman, Morgan Stanley and UBS were being rewarded to complete a sale of Cadbury.
It was perfectly open to Cadbury, for example, to pay the banks a so-called success fee simply for securing an increased offer from Kraft, regardless of whether the takeover is actually completed.
Actually when I first started as a cub reporter more than 25 years ago, it was the norm for defending banks to receive maximum fees for keeping a business independent.
This practice was abandoned a few years ago, because investors viewed it as counter to their interests.
But some would say that paying your advisers to sell your company, rather than to maximise the share price (which is not the same thing), surely tilts the playing field too much to the advantage of the bidder (and for other reasons the playing field is already skewed in favour of acquirors).