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How much criticism can Kraft shrug off?

Robert Peston | 13:27 UK time, Tuesday, 6 April 2010

Powerful brands can survive a good deal of battering.

Cadbury's chocolateSome would say that the US food giant Kraft is putting to the test - with the controversial manner in which it bought Cadbury - the extent to which consumers may turn against the products of a company perceived to have done the wrong thing.

MPs on the business select committee today concluded that Kraft had "acted both irresponsibly and unwisely" by first promising to keep open Cadbury's Somerdale factory while endeavouring to buy the confectionary maker and then promptly changing its mind once the deal had been done.

This, said the MPs, had damaged Kraft's reputation in the UK and soured its relationship with Cadbury employees.

Kraft has tried to mend its image with a series of commitments, to always produce the totemic Dairy Milk in the UK, to avoid further plant closures for a couple of years, and to protect staff pensions, among other things.

These promises will need monitoring, say the MPs.

But monitoring in one thing; enforcing is quite another.

The point is that Cadbury is now merely one important part of a huge, sprawling international conglomerate.

And Kraft will grin and bear the criticisms. How else to interpret the decision by its chief executive, Irene Rosenfeld, not to woo MPs by refusing to give evidence in person to them?

What would hurt much more would be any sense that all those positive qualities associated with Cadbury's illustrious history as a highly responsible employer - qualities which have burnished its brand for consumers - were being erased by the negative publicity generated in recent weeks.

Kraft's owners, which include Warren Buffett's Berkshire Hathaway, would not be best pleased if the company failed to nurture what most would describe as Cadbury's rare and precious assets.

Comments

  • Comment number 1.

    I said this would happen - in fact nearly everyone said this would happen.

    Only politicans and bankers (who bankrolled the takeover) disagreed - that's because they are "all on the take".

    As someone elloquently pointed out at the time - it was the same for Rowntrees and for Thorntons and this would be no different.

    Unfrotunately that person was just a blogger and not a "BBC's business editor" and therefore was not given the podium on which to make this heard.

    Robert - you have failed us, this was a train wreck coming from miles away and yet you chose to talk about banks at the time.

    I hope the remaining Cadbury's workers wake up now and walk out today. They will all lose their jobs anyway - may as well take as much of Kraft with you as you can...

  • Comment number 2.

    And as British jobs get destroyed, the irony is that it was the taxpayer-funded RBS that financed Kraft to do the Cadbury deal. Pity taxpayer-funded British banks weren't so keen to support British businesses instead of ripping them off with sky-high interest charges and arrangement fees, when they're not calling in business loans that is. Caledonian Comment

  • Comment number 3.

    None of this, nor Politicians' impotent comment, will make a blind bit of difference over time.

  • Comment number 4.

    Robert,
    Excuse my ignorance but I've always known it as 'Cadbury-Schweppes'.
    Whatever happened to the 'Schweppes' part?

  • Comment number 5.

    Did anyone seriously think that Kraft would acquire Cadbury and then not change anything. It has acquired the brand name and the recipe - it will now make the product in the most efficient way at the most efficient location it can find and if it has existing plants with spare capacity then it's pretty obvious what is going to happen. The real problem is government and MPs (particularly ironic for the present lot) to believe any promises and Kraft being just plain clumsy over its behaviour.

  • Comment number 6.

    If they did said they would keep open the plant and then changed their mind then that means they are liars. In such a case this is where they should be treated as they deserve. If so, Gordon Brown should publicly declare them liars and take the keys for the plant. The company should be bought back for the same price or the PM should declare a ban on all Kraft products in the UK for the next 20 years. It's time to put the foot down with business and banking rot.... full stop or should we stand back and be treated as gullible thicko mugs?

  • Comment number 7.

    1 WOTW, could not agree more. This is no surprise to any blogger who made comment at the time.
    The only point I would like to try and add is that at least one of the bankers who advised craft was RBS, who kept this from their long standing client of Cadbury's.
    RP, I know you have to say that Kraft "changed its mind" but imo either all your bloggers are have magical foresight or this was planned all along.
    I’m surprised you did not mention that Easter Eggs this year shrank by up to 38% with Cadburys being one of the worst offenders with some eggs reduced in size by 11% and 16% with no reduction in price
    Kraft (and the other producers) will milk a market made up of a few suppliers for all they can

  • Comment number 8.

    Oh you poor innocent MPs on the Business Select Committee!
    Kraft
    a) promised to keep open Cadbury's Somerdale factory and
    b) Kraft changed its mind once it had the deal.
    Well, BSC was there no agreement signed? Did we decide the future employment of these Somerdale workers on a handshake – with an American company no less!
    Doesn’t the breaking of this commitment leave Kraft open to charges of not fulling its “conditional offer”.
    Kraft Executive Vice-President Marc Firestone apologized to the committee last month; he said he was sorry for the uncertainty caused by Kraft's backtrack on Somerdale. But the real picture of contriteness came from Chief Executive, Irene Rosenfeld's decision not to botherso much as attending the inquiry's evidence session.
    An official complaint has been lodged with the UK Takeover Panel, alleging that Kraft misled shareholders and workers.
    Personally, I don’t take much consolation in what Kraft plans to do in the future (to prevent closures, protect staff pensions, etc.) because in my book, fool me once shame on you; fool me twice, shame onm me. Therefore, every Kraft “commitment”, every Kraft “decision” must be placed in writing, must be witnessed and must be reviewed by the Takeover Panel.
    Forget monitoring. Get it in wwriting. Writing holds up better in Court where enforcement happens.
    Cadbury is indeed lost in a huge conglomerate sea. Does Kraft care? Why should it? It got what it wanted. Whem American corporations get what they want, end of story - except of course for the Cadbury employees who had come to rely on the high employment standards of Cadbury.
    Lesson:
    Never allow short-term interests of shareholders and the hedge-fund boys push aside the long-term interests of British companies and the jobs which they maintain. The government and the UK Takeover Panel must review the rules that govern takeovers in Britain.

  • Comment number 9.

    Like Water For Chocolate
    N.B.
    ✳=(Spanish: Como agua para chocolate)

  • Comment number 10.

    If MP's are truly surprised at the consequences and outcome of this takeover - then they are truly morons on an unimaginable scale.


    ....and they want your vote????

  • Comment number 11.

    Post 4 schweppes was demerged in 2007.

    http://news.bbc.co.uk/1/hi/business/6451749.stm

  • Comment number 12.

    test

  • Comment number 13.

    Could someone please list the Cadbury brands manufactured at Cadbury's Somerdale factory that will move abroad so I can make an informed purchaser's choice next time I am in the sweety shop?

  • Comment number 14.

    Of course it was going to happen! Giant multi-nationals only buy other companies in order to maximise profits for their shareholders. They care not a fig about public opinion, employees or anything else. Only money.

    Anyone who still thinks there is anything moral or decent in big business today needs to get an urgent update, because there is NONE. BritGov expells much hot air before stepping politely to one side. BritPublic seethes with indignation but is impotent.

    The only way to hurt Kraft (or whomever) is to boycott their products, hit 'em where it hurts, in the pocket, and not buy anything Krafty.

    'People Power' can still be force for change... but we are mostly just wimps.

  • Comment number 15.

    Robert. You wrote:
    "Kraft's owners, which include Warren Buffett's Berkshire Hathaway, would not be best pleased if the company failed to nurture what most would describe as Cadbury's rare and precious assets. "

    Get real. Kraft needed to get Kraft+Cadburys into debt to do the deal.
    The shareholders will only be too happy that Kraft are performing true to type. Kraft are expected to be corporate raiders.

    While we are at it. I had a quick look at your "On the money". You mention financial magic but no mention of leverage. What you actually described was lending the same money out but at a higher interest rate.
    Banks would not want to do that.
    They want to lend the same amount out multiple times over.
    That is where the real banking magic happens.
    You need to explain that.

    The Kraft Cadbury deal was needed so that money was created.
    It will feed through and keep things ticking over.
    Berkshire Hathaway know and expect this.

  • Comment number 16.

    A lot of business leaders are missing the business select committee.

    Not really much of a surprised as the committee is a bunch of has been and never will bes.

    As for the Kraft takeover, I thought - but no doubt someone will correct my misunderstanding - that when Kraft actually acquired the company they found that Cadbury had gone so far down the line of closing the UK factory that it no longer made sense to stop the process. That being the case why are we not complaining about the Cadbury management rather than Kraft.

    Finally I see that Jack Dromney (aka Mr Harriet Harman) is spouting the usual rubbish about having govt rules to stop key british companies being taken over by foreigners. Since when has a choc manufacturer been a key british industry - defence I could understand (not that I agree with it) but chocolate?

  • Comment number 17.

    Lots of crass criticism here regarding Kraft. What part of Cadbury’s shutting down the plant prior to the takeover did people not understand?

    Ahhh, they said they would try and keep it open but then changed their minds, a lie perhaps. And then they are judged by a committee of professional liars. Fine double standards as usual.

  • Comment number 18.

    Does anyone really believe that the MPs would have stopped the merger even if the promise wasn't made? This is why it is done on a handshake rather than securing a *real* committment: The MPs can pretend to be supporting the local electorate and pretend to be outraged later.

    In reality they know the UK is dependent on foreign loans and investments to fund the gaping hole in the trade balance, and it will continue to be so for some time to come. It can't be seen to be preventing foreign take-overs just to save British jobs. Foreigners don't want to buy British workers, they want to buy British consumers.

  • Comment number 19.

    Is anyone really surprised by this?

    It was completely obvious this deal wouldn't benefit anyone except Cadbury's ex-shareholders.

  • Comment number 20.

    A bit late for the Business Select Committee to start wingeing and complaining about Kraft. It's one of those committees that should be scrapped because it has not one iota of power, just makes noises so the gullible public can be misled into thinking it's there for a purpose.

    Pretty obvious that Kraft will do as it pleases. Jobs, pensions, products protected? If you or the Business Select Committee believes that then you're all more gullible than at first suspected.

    You've let an American company grab hold of Cadbury. There are no "gentlemen's agreements" with American businesses simply because there are no gentlemen in American business. The banking industry has already learned that. American businesspeople are extremely shrewd.

    Where was this toothless Select Committee when Cadburys were trying to persuade its shareholders to turn the thing down? What advice and guidance did it give? Answer: zero

  • Comment number 21.

    This is how the future will look. We are no longer in a capitalist world, we are now in a corporatist world and in that world multinational corporations rule. Citizens and even the politicians we voted for to look after our interests no longer have any leverage over the multinational corporations. Just look at the banks, oil companies, utility companies or a host of others. There are no longer ethics or morals, just bottom lines. The logical outcome over time is for social instability as the citizenry feel more and more disenfranchised.

  • Comment number 22.

    The takeover was always going to be a train wreck. However, "Dairy Milk" may be totemic, but it is barely recognisable as chocolate. Let us hope, therefore, that Kraft don't decide to mess around with Green & Blacks, who were bought by Cadbury some time back.

    The fact that RBS provided the funds serves once more to show that the government don't give a flying duck.

  • Comment number 23.


    With the planned increase in the cost of hiring workers in the UK can anyone really be surprised if a multinational like Kraft simply sees that workers in other nations are cheaper to hire in every respect?

    The government glibly says that NI increases won't cost jobs while to the rest of us it's abundantly clear that it will do just that. How does an economy remain competitive when our costs increase and the costs in other nations does not?

  • Comment number 24.

    Everyone knew this would happen. So why act surpised and ask for an apology?
    I have started boycotting Cadbury products. Instead of buying Easter eggs I gave the money straight to the children rather than it going to Americans who are about to asset-strip a British institution.

  • Comment number 25.

    No 16... You are right about the previous management already building a facility in Poland and would have closed Bristol just as soon as it got on-stream, with an announcement probably in about the same time-frame as Kraft.
    However, in a world of uneven playing fields, chocolate could have been considered as a strategic British industry in the same way that the French argued to the EU that yogurt was a strategic industry when an American company was after Danone a few years ago. All the time Mandy's mates in the city are getting good fees for M&A jobs like this and capital inflows to buy British companies (even if borrowed) are welcome, there will be no attempt to keep British companies British.
    As Paul Mason so eloquently put it in his 2 films on Newsnight last week "Where will the new jobs come from and what will Britain be good at in the new world economy?" The less industry that is actually owned by the British, the less likelihood of investment being put into this non-tech, high cost country. Any jobs going, even in the chocolate business should (ought to be) be a worry for the government

  • Comment number 26.

    I happen to think the sale of Cadbury is a good thing:

    http://shareinvestornz.blogspot.com/2010/01/cadbury-aquisition-good-deal-for-kraft.html

    Sad to see jobs go but this is how business operates and politicians have no place meddling in private business - the last 2 years of turmoil should be evidence enough of that.

    Kraft needs to be allowed to do what it has to without interference from dingbat politicians and their side-showmen.

    You Brits need to get over yourselves and move on to something important, like maybe winning your first world cup in what is it close to 200 years ? :)

  • Comment number 27.

    We all thought this would happen, just goes to show that any promises or for that matter contracts agreed can be broken. That applies to any business contract be it an employment contract, mortgage contract, cell phone contract, credit card contract.
    All have more holes in them than a seive and they are usually weighted towards the most powerful party in the deal.These workers got stitched up big time and they paid the price with there jobs.
    Lies and dam lies just to get the deal done.

  • Comment number 28.

    I watched the Cadbury/Kraft select committee grilling on BBC Parliament and have to point out the facts.

    Kraft were in a hostile take-over bid and thus denied access to Cadbury details. Kraft knew of the two Polish facilities. They anticipated that they could use the new facility 50% Cadbury products, 50% Kraft chocolate products and thus keep Somerdale running. On completion they discovered that Cadbury had £100m of dedicated machinery in the new Polish plant thus scotching their 50/50 plan. Kraft couldn't throw out £50m of machinery so Somerdale's closure, Cadbury's plan, had to go ahead. Everyone at Somerdale will have received this information from Kraft together with Kraft's regrets.

    Warren Buffet, regarded as the world's best investor, is a big shareholder in Kraft and this is a significant recommendation that Kraft is a good company. Warren did make public that he thought Kraft were paying too much for Cadbury. I hope that Kraft got value for money and did not fall for the massive hyping up of the value of Cadbury's by the previous managers.

    Kraft have an interest in Cadbury's as measured by the money they paid for Cadbury's. The Kraft shareholders have an interest directly proportional to the number of shares they hold. Shareholders tend to be pension funds with the reader's interests at heart. Only interested parties should have any control of Kraft's business. Casual interest as displayed by the select committee and those commenting here including my comment are just that, casual, risk free and not therefore worth considering. If you are about to buy a car, a house or a business, you can listen to advise from your others, but at the end of the day it is your money that is on the line and not theirs.

    On the matter of the RBS loan, which I hope we now realise is Kraft's business and no-one elses. Should we not be pleased that this banking business was won by RBS rather than a US bank?

  • Comment number 29.

    If you don't like what kraft is doing, then like me get off your back- side research what products 'Cadbury' makes and stop buying.

    Its simple there's plenty of other chocolate snack manufacturers, you don't have to give up on chocolate, but alas this is THE problem with the British Public we make a big noise, but don't follow up with action.

  • Comment number 30.

    I suspect that Kraft intend to sell off the Keynsham site for development in order to part fund their takeover. As this is an iconic building and part of our national history perhaps it ought to have a preservation order slapped on it along with a restriction to develope the Cadbury land which, was provided for the recreational purposes of the local population. The buiding could be used as a museum showing the history of chocolate making in the UK, use a bit of lottery funding and maybe get Thorntons (a British company )to oversee it. Perhaps open a small shop to sell British chocolate - revenge would be sweet.

  • Comment number 31.

    With Camelot trying to be sold to the Canadians and Cadburys off the to Americans all the partners in the lottery now seem to be foreign.
    So why am I still buying a ticket to support "good works" in this country?

    Time to make this point a bit more public...

  • Comment number 32.

    31 - of the original partners, ICL (now part of Fujitsu from Japan), Racal who created Vodafone back in the 1980's were taken over by Thales (French electronics), Cadbury (now part of the American Kraft empire) ...but there are still 2 more, both British! De La Rue (banknotes mostly) & Royal Mail (until HMG privitise or unions destroy completly).

    The main fault for this was that UK individual shareholders have such a tiny holding in the market (since changing due to the mega cheapness & over pessimism of the LSE), which meant hedge funds etc moved in and made a quick buck. They also had a hand in the Lloyds rescue of HBOS as they had shares in the latter, countless others too.

    If Cadbury had retained Schweppes then it'd be doing the takeovers not becomming a victim, these conglomerates work everywhere except the LSE ..ironically they can also survive in bad economic times as they are not reliant on one market, thats a whole different rant but essentially the Cadbury takeover happened because not enough British investors held the stock & HMG lets anyone buy anything but doesn't get involved when our companies hit brick walls overseas.

  • Comment number 33.

    As a former lover of Green and Black's all I can see is what goes around etc. This is how big companies work. If they can't obtain market share with their own product they simply buy their rivals.

    To those advocating using products by another supplier whom would you suggest. We are facing a cartel of limited choice and no ethics amongst them.

  • Comment number 34.

    Imho, buy Thorntons chocolates!

    and @31 Playmonday charity lottery?

  • Comment number 35.

    No one seems to have seen the truly obvious yet...
    Cadbury's Chocolate tastes pretty good.
    American Chocolate tastes like warmed over crap.

    I'm talking about general grade chocolate here, not the stuff that comes in boxes without a price tag (if you need to ask, you can't afford it etc)

    So, once Kraft abandon the Cadbury's recipes (you don't think they'll do that? hah.) Cadbury's chocolate will taste like warmed-over crap as well.

    At that point, people stop buying it and the Belgians will make a fortune.

  • Comment number 36.

    Woolworths couldn't be saved, but the MPs were all too keen to bail out the banks who got us into this mess of a recession. I could see it coming a mile off, when Cadbury's decided to sell to Kraft, of course, jobs would be axed! It should never have been allowed and we ought to have a law to protect our British brands, because we don't appear to make anything, anymore.
    The closure of that plant in Somerton disgusts me and I can't understand why nobody will try to do anything about it. This country is in a recession and we need more employment not less. Cadbury's has been a British brand for years, so why did they sell just to make a quick buck???
    If the government could bail out the banks as I mentioned previously, then they could have saved Woolworths and also bought out Cadbury's, if it was necessary for the owners to sell and then it would stay in the UK and not disappear overseas like so many other British brands have done.

  • Comment number 37.

    What a fine way to describe Cadbury - check out the last part of this page's address http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/04/cadburys_rare_and_precious_ass.html

  • Comment number 38.

    I do not like the way Kraft did, it is totally not ethical . It is another promise broken. I used to love Cadbury chocolates a lot , it is really nice, I have been eatting it for years, now I am considering changing my taste.

    Kraft have to be responsible for whatever promise he mades, no matter the situation. If Kraft was not sure, do not make empty promise.

  • Comment number 39.

    Like the Yanks during the last war Kraft will not do anything to help the UK (Cadbury) and will continue its own way until forced. Infact the loss of Cadbury will be of no concequence to Kraft who were probably trying to put a dangerous rival out of business and with the help of those excellent ecconomical administraters (Labour) have now succeeded.

    Give Kraft a couple of years and Cadbury will vanish into history and their excellent products will be replaced with the rubbish produced for the American market.

  • Comment number 40.

    With the bonus incentives available to Kraft for completing the Cadbury deal, of course they would say what was needed to get the votes. Kraft is so big that why should they bother what a few MP's think about them? Probably they are now laughing all the way to the bank with those bonuses! Just wait till all the dust settles and in a few years Cadbury will be no more than a few "token" sites in the UK, the rest will be in other countries, look no further than what they did with Terry's Of York.

 

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