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Should hedge funds be disenfranchised?

Robert Peston | 11:15 UK time, Wednesday, 10 February 2010

Name the following business.

It has a workforce of 39,000 outside the UK, with just 6,000 staff in Britain.

Its biggest business is chewing gum.

The focus of much recent investment has been Poland, to replace UK production.

And 50% of the business and management came from the takeover of the confectionery company Adams from an American drugs business some five years ago.

Who is this faceless, heartless global conglomerate, which opportunistically shifts its capital and people to wherever the financial returns are greatest?

It's Cadbury.

Roger CarrNot quite the image that you might have had in your mind in the closing stages of its struggle to repulse the takeover offer from Kraft.

You may have had a vision of a do-gooding, paternalistic, Quaker chocolate-maker, keeping the hearths burning in a picture-postcard Victorian model village in the Midlands.

Hmmm. A little bit anachronistic that, the stuff of Enid Blyton - to quote no less an authority than Roger Carr, who has just stepped down as Cadbury's chairman in the wake of it being swallowed whole by Kraft.

So what was all the fuss about? Why on earth did anyone care whether Cadbury was taken over by an enormous American maker of processed cheese, if in reality it was more global corporate citizen than chummy Brummy with union flag vest?

It's for three reasons:

1) there is intellectual property at Cadbury that is more valuable to the business reputation of the UK than the statistics on where it employs people would suggest;

2) the location of its head office here means that it has a natural bias to award high value contracts to other UK based firms;

3) in the game of cross-border takeovers, the playing field is tilted - so that it is much easier for overseas companies to buy in the UK than it is for British companies to buy overseas (though as Cadbury demonstrates, it is certainly not impossible to buy abroad).

Cadbury was probably just the thin end of the wedge. We haven't surrendered our entire economy into the hands of faceless, heartless foreigners with the transfer of Cadbury into Kraft's belly.

But maybe we should reflect for a moment about the implications of the official government policy that everything is for sale at the right price, now that so much of our transport system, medical research, utilities, communications, basic manufacturing and so on is in overseas hands.

Carr certainly believes this is a moment for contemplation. He made a series of provocative observations about how and why Cadbury was taken over in a speech last night at the Said Business School in Oxford.

Perhaps the most important was that short-term traders and hedge funds increased their holding in Cadbury during the course of the takeover battle from just 5% to 31%.

Now those holders wanted only one outcome, the sale of Cadbury, because only through a sale could they lock in their capital gains.

For Carr, once they owned a third of the company, Cadbury's prospects of staying independent was zero - because Kraft only had to persuade holders of a further 20% to support the bid in order to win.

This is how Carr puts it:

"It was the shift in the [share] register that lost the battle for Cadbury. The owners were progressively not long-term stewards of the business but financially motivated investors, judged solely on their own quarterly financial performance...
"There were simply not enough shareholders prepared to take a long term view of Cadbury and prepared to forego short term gain for longer term prosperity...
"At the end of the day, individuals controlling shares which they had owned for only a few days or weeks determined the destiny of a company that had been built over almost 200 years."

So if that's a problem - and, let's be clear, some would say it's not - what's the solution?

Well, Carr - who is no ideological opponent of free markets - believes there is a strong case for disenfranchising those who buy shares during the course of a takeover bid. Which would mean that the outcome of a bid would be decided only by those who have invested in the target company over a longer period.

So he would agree - in thrust rather than detail - with Vince Cable, the LibDem's Treasury spokesman, who said on the Today Programme this morning that investors should have to hold shares for a few months before being able to vote them.

To be clear, ministers have traditionally rejected such prescriptions, fearing that cure would be worse than illness - that differentially weighting votes on shares based on longevity of ownership would tend to entrench incompetent or venal managers running poor-performing companies.

The very British fear has always been that it's only the constant threat of takeover that keeps lazy corporate directors on their mettle - and it would therefore be bad for British productivity if that threat were diluted.

But my very strong impression of a quarter-century of sleeping with the business community - so to speak - is that the quality and dedication of managers has vastly improved.

Also there is some - but not enough - evidence that investment institutions are starting to behave like responsible owners.

Or to put it another way, they may more routinely replace poor management while retaining shares in those managers' businesses, rather than dumping the shares as the only way of signalling unhappiness with the directors.

So there may be merit in the Carr/Cable idea of legislating such that shareholders would earn the right to vote by demonstrating that they're long-term investors rather than fly-by-night traders.

All that said, the most resonant part of Carr's lecture will be widely seen as a dagger to the vitals of Peter Mandelson and the government.

This is what he said:

"If government really does care, it is essential they decide in advance of a bid if a company is of strategic importance, publicly confirm that position and develop an instrument that may be applied to dissuade or derail a bid if an asset is declared of strategic importance...
"What is really important is that those in power address these issues and decide their stance in advance of the next assault on our industrial landscape rather than bemoan their fate after the ship has sailed".

I am not altogether sure about Carr's landlocked ship. But many will applaud his call for serious re-examination of whether selling England by the pound is the true route to the top of the industrial Premier League.


  • Comment number 1.

    top the industrial premier league i fear we have more in common with portsmouth fc who could shortly not be allowed in your local sunday league.

  • Comment number 2.

    I can't help but ask how Chruchill would see all this?
    How would he and everyone else have coped with a Britain, where all the industry is owned by funds with little or no sense of national responsibility?

  • Comment number 3.

    Right - lets bash the hedgies again - oh wait one second - how did they increase their holding from 5% - 31% - did they buy the shares of the existing shareholders? So the existing shareholders sold to make a profit on their investment? Isn't capital growth part of the reason for the purchase of the shares in the first place - rather than bash the hedgies why not bash the whole idea of a publically traded company? If we took the idea of a minimum period of time to vote then there would be just 70% of the shares available to vote - to pass this would presumably require 51% so would the 30% "locked away" not count either way (eg would it be 50% of the 70% - so again only 35% of the shareholders would be needed to make the business decision?)

  • Comment number 4.

    If a shop opens with only a limited stock for sale and then sells it all it must close as there is nothing left. Only through making new goods will it be able to sell again.

    So when UK has sold everything, what will we make?

  • Comment number 5.

    Institutional shareholders do not take a long term business view - period. They are of the opinion that if they can sell now at one price and buy later at a lower price then that is exactly what they should do. They also "rent" their shares to a hedge fund for a fee and let them do the same in a highly leveraged manner. So in what way will a short-term stay in voting rights make any difference? In this case all Kraft had to do was wait until the voting rights moved in its favour and they would have one aanyway.

    Surely we need to recognise that "social responsibility" only comes with "social ownership". At present the system only benefits the unholy alliance of accountants, bankers, lawyer and politicians. The effort of the workers will be purchased at the lowest possible price (both wages and flexibility) and will be disposed of as soon as a short-term profit can be achieved - often only an ilusionary one to allow the sale to be made.

    At some point we have to recognise that all industries will be taken to lower wage economies, and I look forward to the time when that happens to the financial sector.

  • Comment number 6.

    The City Pages (or business pages but they are not really about business as most of us know it) in newspapers and sometime on the BBC often talk about 'investors'. But should there not be more transparency on who these mysterious people are and what's more whose money is behind them. After all pension funds (whether company or corporatly managed)invest with hedge funds and you can now buy a version of unit trusts which are really hedge funds. Hedge funds do one or more of the following: short selling , borrowing stock,minimum loss techniques, and perhaps disguised 'concert party' activities.

  • Comment number 7.

    The idea of holding shares for a long (!) time to be able to vote on issues should be looked at.

    Then maybe investors would become investors for the long term and support companies and ideas not for now, or tomorrow but for the investors children.
    after all is the current situation ideal? If so who for? The standard answer 'for the county' will not be accepted on this one..
    I await the answers with interest

  • Comment number 8.

    Mr Carr (and yourself) appear to somewhat miss the point. The 26% of long term owners who sold their shares - to hedge funds - de facto sold the Company to Kraft. If they had not sold their shares, the buyers (the hedge funds) would have driven the price up to a point where neither they nor Kraft would not have been willing to go.

    At the end of the day - Cadbury was sold because Kraft valued it at a higher price than its long term shareholders.

    For a crocodile tears free analysis see

  • Comment number 9.

    If Vince thinks it's a good thing, then it's a good thing. If the tories or labour are against it, then it must be a _very_ good thing!

  • Comment number 10.

    Whilst I would be delighted if Cadbury hadn't been bought by Kraft, the complaint against the role of hedge funds is hard to understand. Presumably the 26% of shares which were sold to hedge funds during the takeover period were sold at a lower price than was eventually paid by Kraft (how else would the hedge funds make money?). And presumably those that sold to hedge funds would just as happily have sold to Kraft. It therefore seems to follow that the intervention of the hedge funds is likely to have delayed the takeover and/or increased the price ultimately paid by Kraft. To that limited extent, shouldn't they be thanked? It looks like they at least had more faith in the true value of the Cadburry shares they bought than those from whom they acquired them.

  • Comment number 11.

    Many investors are pension funds (both private and company) and insurance companies. If we do not like their behaviour as their customers we should change the pension fund managers or buy other insurance companies products - perhaps if they sold products with promises on behaviour (like the Co-op bank does in other ways) we could vote with our feet.

  • Comment number 12.

    Understandably slaves have an interest in the nationality of the slavemaster.
    Also, maybe a slavemaster with a longer term perspective treats his slaves better, maybe.

    The point to remember is there's still slaves & slavemasters.

  • Comment number 13.

    Every publicly traded companyy is potentially 'in play' at any time, why they are vulnerable is because of the ridiculous way that Shares are valued. Quarterly earnings reports are the main catalysts that drive most companies share prices - meet analysts estimates and your share price goes up, fail to meet the estimates and your share price goes down AND, more to the point, investors begin clamouring for a change in strategy/management. This is how basically well-run, profitable and stable comnpanies like Cadbury get chewed up by huge conglomerates like Kraft who can only meet growth/earnings expectations through acquisitions.

    And don't get me started on mining stocks..the ultimate gambling chips of the international financial casino!

  • Comment number 14.

    To those wondering WHO sold out to the hedge funds - it was the pension funds in which your pension is probably invested. Why? Because when a company becomes embroiled in a takeover, its share price may become volatile, and pension funds are expected to look for stability over volatility. People don't want their pension gambled with.

    This is the distinction between the heavily regulated risk averse pension industry and the under regulated risk hungry hedge fund industry.

  • Comment number 15.

    Hedge fund managers are the only true capitalists we have left.

    They need to be protected.

  • Comment number 16.

    If we look closely at our foreign competitors/friends and learn from what they do that makes their systems sometimes better than ours, it would be a step forward.

    Better still, if we can begin to understand the difference between and relative importance of cash, money, wealth and value, we might be able to make rational decisions or, at least, have a clearer vision of all this. Until then, we can go round in circles on a blinkered discussion of shareholder value, social responsibility, short and long, investment...

  • Comment number 17.


    Talking about restricting voting rights is a red herring. Decisions on takeovers (unless effected by a scheme of arrangement) are taken by way of an ownership decision, rather than a vote - there is a big difference. If the 30-odd % of Cadbury shares owned by the hedgies had been disenfranchised, they still could have tendered them into the Kraft offer, even if they couldn't vote them. You could suggest locking their shares in during an offer or changing the acceptance threshold, but that would be a much bigger issue than voting rights, and could circumvented by the use of CFDs etc. I think Vince's comments are more of a PR puff than anything else.

  • Comment number 18.

    No, in a nutshell.

    There is a risk to hedge funds attached to buying up shares in anticipation of a takeover. If the takeover doesn't go ahead, the shares will drop in value in the short term. Individuals with any nous and were willing to take that risk would do the same thing.

    I do not understand the obsession with manufacturing. Some of the posts shows that some people think there is nothing more worthwhile than making widgets and chocolate (soon to be candy) bars. Unfortunately, due to our extensive labour laws and tax system it is a lot cheaper to have things made abroad. The directors of Cadburys were duty bound to move production facilities abroad to cut costs and create long term value for their owners, regardless of how long they have held their shares.

  • Comment number 19.

    What about all the milk which was used to make the chocolate, not just in Cadbury Keynsham but other factories which have been moved abroad? A glass and a half in every bar adds up to a lot of milk. It's easy to forget the impact on those producing the inputs for high profile businesses like Cadbury. We focus on the hedge funds and the high finance, and forget there are actually people with small businesses working 24/7 to supply raw materials. Keynsham is a well situated factory, with dairy farms of Somerset and Gloucester on the doorstep, and the markets for the production are convenient as well. At present the farm gate milk price in the UK, at 26p/l compares with 25p in Poland and similar in France and Germany, so there's no argument that UK milk is uncompetitively priced or anything. UK milk is very high quality, in actual fact.

  • Comment number 20.

    Speaking as an Engineer I see the financial system in general, and markets in particular, as examples of systems that all too often are driven by positive feedback. This tends to amplify trends in a way that can be uncontrollable - hence the howl in a PA system turned up too far, and economic cycles of boom and bust.

    The engineering solution is to add damping, like the shock absorber in a car's suspension, so that the system cannot oscillate out of control. In this context one such method would indeed be to prevent short-term speculators from voting for the period of a takeover bid.

    This would not prevent longer term shareholders from giving the managers of a company a kick up the backside (in my car wheel analogy the wheel can still move up and down to absorb bumps), but it would prevent short-term interests from manipulating the situation to their own selfish ends (and smashing up the suspension in the process).

    So yes, I think it is a good idea.

    As for the moral argument about whether hedgies are any more or less to blame than those who sold to them - well it seems largely irrelevant to me. The question is whether or not it is right to introduce a system that protects the national interest in the marketplace, and if so then how such a system should be designed.

  • Comment number 21.

    Hey Robert,
    How about a story on the impact of a slump in Toyota sales to the UK economy? Can throw in Honda too. Will lost sales in UK made cars be captured by other UK manufacturers or will we see further reductions in tax revenue & disposable income at the manufacturers, suppliers & supporting service industries (though I believe having lost overtime, shift premium & 10% of base salary there probably isn't heaps). Any chance or too far outside the M25..? What about impact of Cadbury's om Birmingham (biggest local government employer in UK), what about A400M on Bristol, or reduced demand on military & aerospace in North Wales / North West England. How has Northern Ireland faired, where are Scotland investing ahead of reducing oil fields? I believe a regional tour has previously been suggested so now the snow has more or less gone let see how the whole of the UK is doing. Positive or negative it'd be refreshing.

  • Comment number 22.

    I doubt if Mandelson (oh Lord) is worried at what Mr Carr said. After all Mandy is a piece of Blackpool Rock with politician right thru it. He says everything for effect as you would expect and the vericity of what he says is neither here nor there nor a consideration. Policy delivery is never in the tea leaves.

  • Comment number 23.

    Willy Wonka would never 'sell out' to the highest bidder!

    He knows the Oompa Loompas would never agree to it.

    Oompa Loompa doompadee doo
    I've got another puzzle for you
    Oompa Loompa doompadah dee
    If you are wise you'll listen to me

    What do you get from a glut of TV?
    A pain in the neck and an IQ of three
    Why don't you try simply reading a book?
    Or could you just not bear to look?

  • Comment number 24.

    14. At 12:43pm on 10 Feb 2010, roy45 wrote:
    To those wondering WHO sold out to the hedge funds - it was the pension funds in which your pension is probably invested. Why? Because when a company becomes embroiled in a takeover, its share price may become volatile, and pension funds are expected to look for stability over volatility. People don't want their pension gambled with.

    So where do the pension funds invest the proceeds ?
    As the rump of UK industry goes down the Swanney, pretty soon their only investments will be in Gilts. I'm not sure how risk free that is anymore. I mean there won't be anything behind it will there ?

  • Comment number 25.

    We are into murky waters on this one.

    The first issue is did the hedge fund community buy the shares in the market or borrow them from institutional shareholders? Once we know the answer to this one we can all comment further.

    Robert can you ask Cadbury to what extent shares were loaned to the market in the period just prior to the takeover decision and if the volume is high if they have identified which major institutional shareholders lent their shares to the market during this period?

  • Comment number 26.

    It's for three reasons:

    1) there is intellectual property at Cadbury that is more valuable to the business reputation of the UK than the statistics on where it employs people would suggest;

    2) the location of its head office here means that it has a natural bias to award high value contracts to other UK based firms;

    3) in the game of cross-border takeovers, the playing field is tilted - so that it is much easier for overseas companies to buy in the UK than it is for British companies to buy overseas (though as Cadbury demonstrates, it is certainly not impossible to buy abroad).


    Well, I've got about two dozen legitimate reasons for there being legislation put in place - but here is my 4th reason and which either seems to be have been over-looked (forgive my immodesty for saying) by and/or is unknown to all and sundry:

    4) There is no point the government putting taxpayer money into new private UK industrial concerns, for these to be built up over several or many years - and then these new green and other vital industrial concerns to be raided and knowledge and asset stripped by foreign investors and competitors.

    Surely, this flags the need for principled protection of the proposed new UK industries to create British jobs and lead the UK towards having a sustainable balanced economy.

    Logically, this can be achieved with the current level of exposure with everything for sale all of the time. Nearly every other country in the world practices 'protectionism' of their vital domestic industrial and other resources while at the same time proclaiming themselves to be 'anti -protectionist'.

    Is it just that our home grown yellow striped cowardly goon whimpering sleaze museum MP's are just belly crawling no good sell out bandits who are scared of upsetting something, somebody or other?

    Isn't it time that the UK played the game - 'downhill' for a change?

  • Comment number 27.

    Given the ease with which British companies can be bought by overseas interests, it might be a good idea for company workers, suppliers and unions to become shareholders to protect their own interests.

    It might also be a good idea if the UK government came up with the same kind of restrictions other countries have to prevent the purchase of their well known companies.

  • Comment number 28.

    Either you have a market or you dont. If you have a market then people who benefit from changes will make the market change in their favour if they can.
    christopher_bell is right about the market and positive feedback effects - the market causes its own instability. But either you have one or you dont. If you damp it enough to prevent it causing instabilities - it follows real growth - it will become self extinguishing as the costs of running it will make it a bad investment.
    There's no point in picking on the people who managed to make a fast buck this time - someone will always find a way of tipping it over another way and cleaning up from that.

  • Comment number 29.


    You don't want it - Don't vote for more of it!

  • Comment number 30.

    Interesting idea, and something that biases things slightly back to longer term shareholding would probably be good.

    But as many commentators have observed the hedgies would have originally purchased their shares from "long term shareholders".

    The real incompetents here of course are the pension fund managers based in the City of London, who have escaped a lot of the recent flack that has gone the bankers way, but who are nevertheless just as guilty of operating a cartel.

    Why are they incompetent?

    Because they all collude to set high charges (... I think the moniker they operate under is something to do with British Insurers???!!!), they are lazy, they produce diabolically bad returns for ordinary people, and the only way they find that they can then recover short term performance targets when things have gone pear shaped is by immediately selling out to any takeover that comes along.

    Robert, please look into the cartel that is the fund management "industry" that operates in the City of London and find out a bit more. Why are all their charges so high? When any politician says that they want more savers in the UK, would not the one thing they can do which actually achieves this be to allow a proper free market to reduce the management charges set by the pension funds?

  • Comment number 31.

    Roger Carr could have asked his shareholders at any time if they wished to put a time constraint on the voting rights for newly aquired shares, He didn't.

    It's a bit late in the day to suggest this now.

    There are other things that he could have implemented which would have made bidders think twice such as a 'golden parachute' for employees (or does this only apply to directors ?).

    It was Rogers job to push the takeover price up and he did so by playing the 'British' card and no doubt he has been well rewarded.

    It is no good now looking for sympathy by blaming the hedgies, take your 30 pieces and go.

  • Comment number 32.

    They have basically disguised pension pots/savings and taxpayers money,shrouded it with complex documents,moved it around a bit,put it all in a huge trough run by their clique and then then taken a large slice of it because they feel entititled;presuming themselves to be brilliant.
    If they were all so clever and talented to be worth ridiculous bonuses to keep them how come they never saw this juggernaut coming.They made millions basically by overvalueing assets and passing them around to and fro with their 'genious' mates.
    Repossess their ill gotten gains I say.Having made millions they have lost us trillions.
    If they deserve a fat bonus for short term gains then a Securicor driver deserves a £100,000 bonus for safely delivering a million quid.

  • Comment number 33.

    29. At 2:25pm on 10 Feb 2010, spareusthelies wrote:


    You don't want it - Don't vote for more of it!"

    So what do you propose? Who do you know that "voted for capitalism"? Telling what we shouldn't do is meaningless; suggest some alternative, please. This is just soap-box stuff.

  • Comment number 34.

    Well anybody suggesting chocolate making is a strategic industry is probably not the best person to have running UK policy.

    The increased stake of Hedge Funds relates to those supposedly longer term shareholders ditching their shares at a speculation enhanced price, hedge funds making profits will likely mean the ordinary shareholder would also if they choose to re-evaluate their investment in light of the new proposals and sell. The coveted long term investor are the ones selling out in a market where other capital positions have been eroded either through low interest rates, decimated banking sector. Sounds like Sour grapes, I bet he did not have an issue with anybody else getting sold until it was his company next in the line. Ultimatley hedge funds can only buy the voting rights if others are willing to sell them.

  • Comment number 35.

    'Should hedge funds be disenfranchised?'



    'Perhaps the most important was that short-term traders and hedge funds increased their holding in Cadbury during the course of the takeover battle from just 5% to 31%.'



    'So there may be merit in the Carr/Cable idea of legislating such that shareholders would earn the right to vote by demonstrating that they're long-term investors rather than fly-by-night traders.'


    Selling a UK company in e.g 20 years time can be just as damaging in twenty years time as e.g. the sale of a UK company now to foreign assett strippers.

    We can't trust our government so who do we 'trust'?

    A '1% interest' of all UK 'strategic companies' (employing more than 30 employees?) has to be owned by a permanent UK trust made up of rotating trust members - who cannot sell their interests as Trustees.

    A 'strategic privileges corporate trust'?

    Legislation urgently needed to remove the 'golden ladder' from these vultures and to set up a new 'trust' model and prevent the company HQ's or strategic businesses in the UK being raided, asset stripped and taken overseas - to make it worthwile putting in taxpayer monies into new UK industries and for these comapanies to pay a lower rate(s) of business taxes for making a permanent commitment to the UK?

    It all needs a radical fix!

  • Comment number 36.

    The most ironic takeover was Boots the chemist, KKR ( the klu klux rabbi's as they are un-affectionately known in Nottingham) Bought Boots with money borrowed from pension funds (and banks) then, even after they promised not to, closed Boots final salary pension scheme, even though it was one of best run (and in profit) schemes in the country.

    The hedgies are just out to make a dishonest buck 'lying is the new honesty' to them. But what can we do ? Our politicians are just as dishonest, they aren't interested in protecting British workers or their rights.

  • Comment number 37.

    Robert, you say "But maybe we should reflect for a moment about the implications of the official government policy that everything is for sale at the right price, now that so much of our transport system, medical research, utilities, communications, basic manufacturing and so on is in overseas hands."

    But there is another policy that makes British companies attractive to overseas investors...

    The Government policy to devalue the pound so as to help exports.

    The side effect is that it is not only cheaper for overseas companies to buy our products but also our businesses, lock stock and barrel - "I was so impressed with the product that I bought the company!"

    It is correspondingly more difficult for British businesses to buy overseas companies - so there will be fewer of the deals such as the Cadbury purchase of Adams that you mentioned.

    Whilst the pound is so lowly valued we will probably see the ownership of more companies disappear overseas.

    The lower value of the pound will give a short term fillip to the UK economy, but at long term cost.

    As the pound gains strength again in the future, the jobs will follow the ownership of the companies overseas, as keeping the British workforce becomes correspondingly more expensive.

  • Comment number 38.

    The sooner we have Vince Cable taking residence in No 11 Downing Street the better! That would be a wise move by anyone who is handed the keys to the place next door.

  • Comment number 39.

    Correct Horned_Devil. The shares were bought from somebody. If the Hedgies' purchases are to be registered, should not the identity of the vendors be similarly disclosed?

  • Comment number 40.

    Thing is our labour is so expensive and covered with full of employment protections, companies are TAXed heavily. How can the government expect British companies able to compete internationally.

    It's much easier for a foreign competitor come to bid for the company, dump the labour cost and says sorry in their (foreign) languages.

  • Comment number 41.

    This is the end result of globalisation that so many feared.

    The balance tilts and the takeover of so many of our utilities and large companies which have created the employment and wealth over the years is giving power to outside influences who do not have the well being of this country at heart.

    A more balanced economy is what we need but how can we balance our economy as head offices of exporting companies are flowing our of the country and decisions on employment and relocation are taken elsewhere.

    It has taken many years to build up such companies and they are gone at the drop of a hat.

    We need to export more to China but what have we got that China cannot make or will not be able to make for itself at a fraction of the cost.

    We have to accept the the sell out of Britain has been far wider and more destructive than anyone ever dreamed of.

    Globalisation means only one thing. The collapse of the western economies and the continuing rise of Asia. Who has the answer to that without using the dreaded word protectionism?

  • Comment number 42.

    Surely the reason that so much British industry has been sold abroad is that we have had an endemic trade deficit for more than fifty years. If foreigners end up with lots of sterling that we have given them in exchange for goods, they will be nervous about holding it in a sterling denominated form, because of exchange risk, and will use it to purchase UK assets with real value. The same thing is happening to the US, which has also been running a large deficit.

    The UK economy needs to be rebalanced to remove the deficit. The exchange rate should no longer be propped up by interest rates. While high rates suit the financial service industries, they discourage productive investment.

    When the present crisis ends, interest rates and the exchange rate must not be allowed to return to high levels. Low interest rates and a sensible exchange rate will help recreate productive industry in the UK.

  • Comment number 43.

    Politely what a load of guff.

    Lets break this down into what it really means. I, like the vast majority of people (usually through their pension schemes) own shares. What is proposed is, in effect, that I should not be allowed to sell my shares to people the govt (or maybe it is the tabloids) do not like - they are the wrong "sort" of people, probably speak with funny accents and certainly wouldnt be allowed to be members of the local golf club.

    This thinking has been derided in other contexts of the ramblings of a bigot. If I want to sell my shares (subject to all the normal insider dealing rules) why should the govt have any say in to whom I sell - would you accept this if instead of it being shares it was your house

  • Comment number 44.

    We're still thrashing around without knowing for certain that the short term traders/hedge funds bought the shares as opposed to borrowing them.

    Shares represent risk capital and equity holders are expected to exercise governance over how companies are run.

    If I had bought shares last week I would not want to be inhibited from voting against - say - an excessive directors remuneration scheme if it's announced this week.

    Also, you can rank shares for entitlement to dividends because you can calculate the economic value of the dividend foregone and adjust the market price. You can't easily attribute an economic value to a vote. I think that disenfranchising new holders would be very difficult to implement and operate. If I have held 10,000 shares for several years and buy another 5,000 do I have to wait to exercise voting rights on my additional holding? If so, why?

    If the hedge funds borrowed the shares from other investors and voted then there is a more serious problem that requires investigation.

  • Comment number 45.

    All voting rights should stay with the lenders and not be part of the package lent!

  • Comment number 46.

    Onward-ho is giving up Philadelphia on his crackers.
    It will make zero difference but it is a change....ho loves it with smoked salmon, but after these shenanigans it does not have good associations, it tastes a little off.
    One pound fifty a week for 52 weeks for another 40 years.
    That comes in at £3120.
    There , that will teach'em!
    And I never buy the Times or subscribe to Sky.
    Thirty years at a pound a day and twenty years at twenty quid a month
    =£15750 so far in today's money and another £24k to go foranother forty years is another 24k bringing the total up to nearly £40k at today's prices.(which will be 80k in Tory prices such is their propensity to inflation!) .
    Quite satisfying really, a good penalty for meanies.

  • Comment number 47.

    The current investment firms look at money and only money. They will get in and get out because they are leveraging money. The production, management or employment are of no concern. The modren day money-changers are no different than the earlier times and have now equaled their reputation. Again, there is a need for governmental over-sight and rules. Clearly regulate the investor during offers to buy. Speculators in oil should be outlawed. We have had a painful expereince of what happens when banks and investment firms decide to gamble with other people's money. If the risk is with thier money that is there decision but if the risk is that of investors so approval from those investors should be required and that is the individual investor not fund managers. Was nothing learned?

  • Comment number 48.

    I am always perplexed at where all the money goes. Hedge funds seem to make large returns, but my pension has low/ zero profit. After maximising their return with no regard for the future consequences (that we taxpayers will have to fund), where do they spend their profits? It's not in Corporation tax, or personal tax, my pension, lower costs for goods I buy, lower bank charges etc, so where is it relocated?

    At the moment it seems a one way street, like a Viking raid on a settlement.

  • Comment number 49.

    I think there is a slightly different issue here, with a potentially simpler solution.

    Why are healthy companies allowed to be bought by debt ridden companies?

    The simple slution would be to only allow these takeovers to go through if the buying company can afford it without having to raise debt to fund the deal.

    This might have implications for some football clubs which seem to be thriving on debt!

  • Comment number 50.

    For clarity, the UK has probably the most lenient employment laws in the EU, which is why when multinationals come to sack people, the Brits are the first to go. It's not that we're inefficient or expensive, usually the opposite, but we're the easiest to sack.

    So you can shut down Keynsham with ease. Can't do the same with a Belgium, French, Dutch, German, Italian, Spanish company, it costs too much.

  • Comment number 51.

    Most comments so far have picked up on the voting limitation suggestion. I want to comment on the "strategically important" company issue. The first point here is that Cadbury can, by no stretch of the imagination, be of strategic importance. It makes chocolate. So why we think the ex-Chair of Cadbury has anything worthwhile to say on the subject is hard to understand. However, we all know what a "strategically important" company would look like in the eyes of a politician. Its degree of strategic importance would be proportional to its UK headcount and dispersion across marginal constituencies. Economic considerations would not be part of the calculations, though a time element probably would be built in: bids in the immediate aftermath of an election would have a far higher chance of approval than those immedaitely prior to an election.

    I think the restrictive voting idea has been roundly rubbished by most people, who have pointed out that hedge funds only acquired 26% of Cadbury because virtuous long term holders sold out to them. What we see here are conservative long term holders making a conscious decision to crystalise the certainty of some gain from the bid period, versus the greater risk appetite of hedge funds to achieve a higher gain but taking the risk that the bid fails and they make a loss, ie the share price falls all the way back to pre-bid levels.

    There is merit in trying to engage long term holders, but restricting voting rights is not the way to achieve it. The criticism Carr ought to make is that long term shareholders were not actually that loyal and deserted Cadbury, effectively abrogating their responsibility by selling to hedge funds. They were rewarded for doing so (by the difference between pre-bid prices and that paid by the hedge funds to acquire their shares). A better way of discouraging speculative, marginal bids would be to levy stamp duty at punitive rates on all share sales in a target company during a bid period. That would both discourage long term holders from selling, but also encourage hedge funds to pay lower prices to acquire target company shares, as they themselves would face a punitive stamp duty charge when they accept the acquiror's offer. They, therefore, need a larger difference between the price they expect to receive and that which they pay in order to make the trade attractive.

    Carr's intervention is anyway simply a way of covering for Cadbury's woeful management. On the day Kraft bid, the Cadbury share price rose from 568p to 783p, or 38%. Eventually Kraft offered 850p, or an increase of 50% on the pre-bid level. That's 38-50% of value that Cadbury had failed to deliver to shareholders. The Cadbury Directors did a much better job for shareholders in the financial exercise of the bid than they ever did making chocolate.

  • Comment number 52.

    Re 45 - George Den is right and there is an industry code to this intent but in practice it is very difficult to 'police'.

    Commingled share pools operated by many custodian banks effectively conceal the identity of the holders although Company Law requires declarations by shareowners if they control more than 3% of the issued share capital.

  • Comment number 53.


    For once a bit of sanity in reporting on this takeover. Your opening statements are spot on – Cadbury wasn’t that British, either by workforce or where it manufactured or where its revenue came from. People seem to forget that only two years ago it was Cadbury Schweppes. And for a FTSE 100 company it had a higher than average ownership by non-UK, particularly US investors, apparently in excess of 40%. By several measures it had ceased to be a ‘British’ company quite some time ago.

    During the bid you had all sorts of ridiculous statements from politicians and the like about losing a piece of UK Heritage. I’ll give you some heritage: Where did Cadbury make their iconic chocolate brand ‘Bournville’? Answer, France.

    And as many here have pointed out, were did these nasty Hedge Funds get their shares? From the so called long term investors so desired by Mr Carr. Some friends they turned out to be. Incidentally, the figure of 31% you mention is based on what? Where did that come from? Cadbury? Because I believe it was lower, nearer 25%. For a FTSE100 company in an M&A situation, lower than you would normally expect.

    @39 The identities of the sellers prior to the formal offer would be known to Cadbury or would have been if they were being diligent (spill the beans Mr Carr!) and most thereafter will be known to you and I through Rule 8 disclosures.

    @44 (main point a good one) and @45 This had nothing to do with borrowing

  • Comment number 54.

    >many will applaud his call for serious re-examination of whether selling England by the pound is the true route to the top of the industrial Premier League.

    Well of course it isn't, it is in fact a nice spiraling descent downwards- in ever decreasing circles.

    Let us think of the situation on a more comprehensible scale- a village high street. (In abstract, just a similie!)

    A village and it's inhabitants have a number of businesses varying from local farms and breweries to the odd industrial unit. They are primarily all owned locally, and thus their profits go into the local economy. Then the supermarket sells up to an outside owner.

    Fair enough, the supermarket continues to emply local people- so overall not too big a loss in income. In addition it brings in outside produce so things become a bit cehaper for the local residents. A bit tougher for the farms, but competition is a good thing right?

    Then the local industrial units move out. Quite a few jobs gone, but there is more space for houses so the prices come down. Trouble is that with so many people interested in the cheap housing the prices soon go up instead. Mortgages make wallets rather tight, particularly with fewer skilled jobs around and more unemployed competing with each other for work and willing to undercut each other in order to get work.
    But competition is a good thing, so don't worry!

    Next the smaller shops sell up, and now the farms are held to ransom by a cartel of outside owned shops who force down the profit margins of the Farmers. Many of them sell up to. Good old competition has put the least fit out of business, and now the village has most of its food supplied from outside the area.

    Repeat until everyone in the village works for someone who lives elsewhere. What do you get?

    You get an economy that doesn't work in partnership and trade with other economies, you get one that is slaved to them!
    Sound familiar?

  • Comment number 55.

    Should 'hedgies' be disenfranchised? Too right they should. Any move that stops such as Tony Bliar from profiting to the tune of £500,000 from the fall of Northern Rock has to be a good move for the rest of us.

  • Comment number 56.

    # 43. At 3:14pm on 10 Feb 2010, Justin150 wrote:
    > What is proposed is, in effect, that I should not be allowed to sell my shares
    > to people the govt (or maybe it is the tabloids) do not like - they are the
    > wrong "sort" of people, probably speak with funny accents and certainly
    > wouldnt be allowed to be members of the local golf club.

    You are exaggerating your own importance. If you do something that is against the public interest (i.e. against _my_ interest), then I'm going to stop you if I can. That's why we have democracy – to allow the public to mold things how they like it, however inconvenient it may be to some individuals.

    > This thinking has been derided in other contexts of the ramblings of a
    > bigot. If I want to sell my shares (subject to all the normal insider
    > dealing rules) why should the govt have any say in to whom I
    > sell - would you accept this if instead of it being shares it was your house

    I don't know about the “ramblings of a bigot” here, but there is every reason why we, the taxpayers, should have an interest in your trades. If it's not in our interests, we'll put a stop to it, and who could grumble about that? If it was against our interests for you to sell your house, we'd put a stop that, too, but how could it be?

    Milton Friedman would be very much in favour of this idea - he thought everyone should look after themselves, and that's exactly what we are doing. If a thing doesn't go in favour of the powerful majority, we can shut it down and do something else. Who could grumble about that?

  • Comment number 57.

    Is Kraft-Cadbury in the process of transporting thousands of UK jobs to Eastern Europe or Asia? I don't know.
    But is modern capitalism forgetting the working man?
    Short-term shareholders, bankers and investment groups get richer, at the expense of working people?
    Are ordinary folk getting fed up with this?...particularily as "big finance" is asking working folk to bail out all its' debts, losses and wreckage.
    Capitalism was supposed to be for the benefit of all, but "all" now seems to mean less than 1% of the people.
    As we see in Greece today, this sort of gross imbalance is getting politically dangerous.
    Most people are seeing the wealth of the nation "manipulated" towards the few.
    If this trend continues, we will have a society where wealth is ever-more concentrated towards those in "big finance"....the rest of us will be poorer, and yet still having to cope with their reckless losses.
    The fair capitalism that I have known for decades has now become "us and them". It was never supposed to be like this.
    Vince Cable is right, as usual. But I believe that all shares should be held for a minimum time. "Day trading" etc are about as useful to the general population as a boil on the nose.

  • Comment number 58.

    I understand that Cadbury employed some 45,000 people worldwide of whom only 6,000 were in the UK. They were already planning to close one UK plant and shift production to Poland with the loss of 600 UK jobs. Their largest seller was not chocolate but chewing gum.

    Maybe the UK side was the last thing Kraft were after?

  • Comment number 59.

    54 - good comment - such is the process of globalisation.

    It is inevitable in the global village we all now live in (apparently) that those at one end of the high street are going to be competing for jobs with those at the other end of the high street - and price will be the single differentiating factor.

    I've read quite a few economic articles arguing we won't see growth return to the UK until we can compete price wise - which means lower wages (in real terms) and a lower standard of living for all.

    QE will, of course, devalue the currency by inflating money supply - meaning we may still get the same amount in our monthly pay slips, but it buys a lot less - a government imposed, across the board pay-cut for everyone in the country, but the only way to reduce the real-term debts of the nation (and, coincidentally, the savings of those with any financial accumen).

  • Comment number 60.

    54. At 3:51pm on 10 Feb 2010, Leviticus

    Exactly. Clarity and thinking are always necessary.
    Businesses are devised to look at one consequence - short-term profit.
    We need a change in accountablility and thinking among everyone involved in business, from the local shopkeeper all the way up to the biggest and richest companies - an emphasis on a broad consequence spectrum.

  • Comment number 61.

    I suppose what we now have today can best be descibed as "clique capitalism"....
    Those few tens of thousands at the core of "big finance" are scooping up all the power and wealth, whilst leaving the rest of us floundering in debt.
    The working people of Europe and the USA must be wondering where all that wealth is going.
    Perhaps share-trading needs reform, just like banking.
    "Clique Capitalism" is becoming politically dodgy....even the most well-ordered population have a limit to their patience, and a limit to how much imbalance and injustice they will tolerate.
    Western governments need to get "big finance" under control.....those who are being damaged have votes.

  • Comment number 62.

    Arnold, for a penguin you talk a lot of sense; and there's me thinking all you guys did was stand around in the arctic all day freezing your nuts off........I'm impressed

  • Comment number 63.

    Just a thought, but surely part of the "problem" (if such it is, is that Cadbury's long since ceased to be an undertaking for the making of chocolate and became an undertaking for the making of money.

    It was run by accountants for accountants just like every other major company.

    Equally the ownership of the share was a purely financial purchase of a paper, financial asset.

    So long as that mentality prevails you can do whatever you like and still change nothing. The UK is essentially a culture in which everything has a monetary value: and the monetary value is everything.

  • Comment number 64.

    This is an outstanding piece - well researched and soundly argued.
    Not only does it nail the hypocrisy of Mandelson firmly to a tree, it also makes the most important point about reforming capitalism: that it exists for the greatest happiness of the greatest number....not the US or Chinese elites - and most emphatically not for the anti-social gargoyles of the Hedge Fund tendency.
    More like this please!

  • Comment number 65.

    Bang on the money!

    The late great Bill Hicks commented early 20 years ago about a similar problem with celebrity culture. That actors, singers, comedians and the like considered it the highest pinacle of their careers to sell out to product endorsement.
    He, quite rightly, baulked at the idea that people who made their living based on artistic integrity were ready and willing to sell that integrity to the highest bidder.

    There is little difference between that and the various manufacturers and engineers of the world selling out.

    Now instead of the integrity in question being based around an artistic perspective, it is based around a professional one.
    How many brands are 'trusted' because of the reputation they have amassed from the days of being run for the purpose of providing a high quality service or product? How many are losing those reputations?

    The accountants start making decisions based upon numbers alone, instead of what the numbers mean and how they came about, and things start to go wrong. Reputations built on decades of work by inventors and entrepreneurs go to the wall, and the businesses reliant upon them follow. And all the while the accountants have their little equations (based on theory not true maths) to demonstrate how they made all the right decisions and none of the bad stuff is their fault.

    Anyone want to join the latest sweepstakes? This one is for the amount of time it will take before documents show that engineers at Toyota pointed out the brake and accelerator faults years ago, but were over ruled on assigning resources to resolving the problem in the minimum amount of time by bean counters who calculated they still have another year to go before they have to act?

  • Comment number 66.

    Re 60, CopperDolomite

    In my experience, most micro to SME where the owner works in the business, tend to not be concerned with pure profit, but trade holistically, where profit, staff, reputation and customers all matter.

    Once a company gets publically traded, or venture funded ( with a view to being traded), it all gets hard nosed, and money is king. By this stage, the company is large, and the owners don't work in the business, nor know any staff or customers.

    Interestingly, these sort of companies also pay very little corporation tax relative to their size, compared with the smaller size.

    Perhaps the lesson is "small is beautiful".

  • Comment number 67.

    62 Auden Grey

    Only for the six months of the year that speculators are trading oil futures. The rest of the time we have the central heating on...

  • Comment number 68.

    65 Leviticus

    "...were over ruled on assigning resources to resolving the problem in the minimum amount of time by bean counters who calculated they still have another year to go before they have to act?"

    The main character in Fight Club (not everyone's cup of tea) is an accident investigator for a major car firm who calculates whether it is cheaper to recall cars and repair known faults or continue to compensate the victims of accidents... I'm sure whoever wrote that didn't just pluck the idea out of the air...

  • Comment number 69.

    #56 I think we can agree to disagree.

    As far as I am concerned whether you are talking shares, houses or any other assets it is, with a few exceptions, none of the govt's business to whom I sell.

    The exception are to do with things such as national security (limits on sale of weapons), safety (no unsafe toys for example) and health (no sale of alcohol to minors).

    As soon as you decide that it is in the public interest for a company (other than for national security/defence concerns) to be sold to someone because they are foreign then what is to stop other countries refusing to sell companies to us - UK is one of the biggest investors in the rest of world.

    As soon as you decide that it is not in the public interest not to sell shares to "johnny foreigner" what logically is to stop a govt to say the same thing about houses. That is not a society I feel comfortable with.

    Going back to the original suggestion - it is so defective on so many levels it is difficult to know where to start but

    (1) let us suppose that 99% of the company's shareholders decide that the takeover so overvalues the company that they would be mad not to accept. So why should the 1% hold the 99% to ransom?

    (2) What does dis-enfranchising actually mean? If it is simply that they cannot vote then this is legally meaningless because on the Buyer has acquired 50%+ of the shares presumeably the takeover process is at an end and the buyer gets his votes and can force through the process. If it is supposed to mean that they cannot sell their shares on, then you are also stopping other people buying shares to defeat the takeover offer.

    (3) If you are disenfranchising those who bought in the takeover offer period what about those who bought just before the takeover was announced? or those who bought a month before? How do you distinguish between those people who bought fully intending to hold for the long term but then were given an offer which was too good to say no to.

    The proposal is utterly hopeless and completely impractical.

    Do you really want to be in the position like the French where a yoghurt manufacturer is a "national asset" and not in the public interest to be sold or do you want to be in a position where foreign investors believe the UK is the best place in Europe to invest.

  • Comment number 70.

    65. Leviticus

    Reminds me a story of a gas engineer told me a few years ago.

    A small engineering firm made high quality thingies (something to with joints) and supplied the nation with them. Years had gone by, competitors had been lost as industry declined, all down to market forces, but this company had managed to survive by shrinking down, giving up on car parts and other extinct industries and keeping at least some of the highly skilled people.

    The 'Gas Board' downsized, ridding itself of the people who had worked their for years, the buyers etc, who knew their industry, the experience built up with years of hard work, prefering instead the bright young things with qualifications from university, trendy gizmos and trendy management-speak, but lacking in life/industrial experience. They found a company in a far-off land who could make the same joint 'thingy' for a lot less. They placed the order allowing maintenance and new infrastructure to proceed at an even better profit. The local company, with the cancelled contract couldn't compete with the price saying he wasn't prepared to sacrifice the quality of his product - lives depended on it. They closed, mothballed the factory and sent the engineers off to work in the new industry of call-centres.

    Within three months the gas company were having major problems - the new, cheaper joints were lasting for as little as three months, leaking and put whole populations at risk.

    No idea how on earth they sorted it out, but the engineers, many of whom had moved away, couldn't or wouldn't be enticed back no matter how hard the bright young things, those trendy accountants and managers, pleaded and begged.

    Not even sure how true it is - but it doesn't negate the lesson.

    Chasing profits is all very well. If you can live with the consequences of breaking gas pipes running into homes etc, so you had better know what you are doing.

  • Comment number 71.

    Thank you for publishing my comments - but please why are they always signed "you". I am always signed in as Pamela Read but for some reason that name no longer appears on this blog instead my comments are attributed to "you".

  • Comment number 72.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 73.

    because 'they' are watching 'you'

  • Comment number 74.

    What ever happened to WRITINGSONTHEWALL???
    I used to really enjoy reading his comments.
    He was a realist and a legend on these blog boards.
    Some people seem to think he was all doom and gloom but he made alot of sense and told it how it is and mainly correct on how it is going to be.

  • Comment number 75.

    We have to get out of the mindset of protectionism.
    Whether we want to admit it or not, we are limping along as a third-world economy. We have to shake ourselves down, cut out the dead wood, and start to compete in the real world.

    We don’t even have to learn the corporate games, we can eventually beat them at a different own game. (We have no prospect of beating them at their game in the short-term ‘cos our crippled banks will never lend us the money).

    Meantime we have to start-up thousands of new companies -a couple of hundred regional chocolate companies under some 'UK-trade' banner or something, would be a start, and convince the big supermarkets and petrol stations to stock the best products.

    Cadbury is gone, we have no loyalty to their chocolate bars any more -so plenty of opportunity to start afresh.

    The KKRs and corporate raiders of this world only want to swallow giant companies, so small is beautiful and you can stay under the radar.

    The total chocolate market in UK is £5 billion a year. 0.1% of that is £5,000,000. -and I can always eat more.


  • Comment number 76.

    I don't see than stopping one sector of share owners from voting when they don't do it often anyway has much to recommend it.

    Rather change Company Law to give a golden share to the Office of the Mandelson so that he, or his successor in office (i.e. Mandelson who handily becomes a Tory) can stop anything he does not like.

    Are you now beginning to see the flaw in the whole disenfranchisement idea?

  • Comment number 77.

    #56. Jacques Cartier wrote:

    "Milton Friedman would be very much in favour of this idea"

    It is a shame he is dead as he is unable to see the results of his unwise economic theories and light regulation - the worst depression in more then a century.

    Even the economic plonker Mervyn King is now recognising that this depression is a multi-dip recession that we have 'emerged from' by employing extraordinary measures - but for these measures (QE and zero interest rates) we would still appear to be in recession - but this is exactly where we still are. Only when ordinary rational economic monetary management returns - and we are growing again - will we be actually out of recession anything else is lies. When Mervyn King says rates will remain at zero all year what he actually means is that there is no sign at all of normal economic management returning and in consequence we will be in an ever deeper recession i.e. a depression or slump of proportions greater than the 1930s and rivalling the 1870's.

    Personally I advocate a maximum national wage for five years, a return to rational monetary management and honesty in the statistics. We have to flush out the overpricing of assets fro the economy to be able to recover - if we do not the economy can't recover as was shown in the 1870's. Only when we grasp this can we get back to sensible economics. (Why the 1930's was so relatively short lived was that the asset pricing bubble was in shares in substantial measure. The consequence of this was that ruin was rapid, but asset repricing was also rapid and in consequence these assets could rapidly again become productive. Whereas the 1870's depression had more property prices and because the market in property is less liquid than shares the economy took longer to recover.)

    What this all means is that in effect hedge funds that loose a lot of money (as they mainly do!) are an efficient way of down-pricing assets - the pity is for us that they are not involved with our main bubble - house prices!

  • Comment number 78.

    #71. Pamela Read wrote:

    "...but please why are they always signed "you". I am always signed in as Pamela Read but for some reason that name no longer appears on this blog instead my comments are attributed to "you"."

    I find it annoying too! (Just log out and you will be Pamela Read again! And when I do it the 'you' this is me will be me again!)

  • Comment number 79.

    66. At 5:56pm on 10 Feb 2010, Crookwood

    Generally, I agree with you. Perhaps little IT firm (those who dream of building a business, something Mr Gates might like to buy) would have been a better example than 'shopkeeper' for my point.

  • Comment number 80.

    71. At 6:30pm on 10 Feb 2010, Pamela Read

    Sign out or look on a different browser and you'll see your name - the blog knows who 'you' are... that's all.

  • Comment number 81.

    70 cD

    This is true of all the nationalised industries that were then privatised- at least one firm made components upon which (effectively) the nation was dependant and said firm(s) went out of business following privatisation. Quickly followed by a disaster recovery procedure to try and get that product back!

    As any engineer who works in a national to private industry can tell you, the red tape and cost cutting brought about by making the industry(ies) more 'streamlined' and 'efficient' has in fact made them exactly the opposite!

    Here's a true example.
    We were having 2 new laser printers installed. About 4 foot high on wheels, they were to go against the wall where our current smaller printers were sitting on shelves. Our man in the office to oversee this simple task used to work in the department that did such installations- before it was outsourced.
    After 4 hours of phonecalls and emails, he got the printers (already delivered 2 weeks earlier) measured by facilities. They then concluded they couldn't cut a hole in the shelving to allow them to go where they were wanted. 2 more hours of phone calls and emails and our earstwhile engineer proved it was in fact safe. A few days later and that department cut the holes, which took less than an hour.

    A couple more hours of emails and calls to find out who it was who would plug them in. No, I'm not kidding! I.T. wouldn't accept responsibility unless they could confirm it was on their contract, and neither would the 'department with a silly name' that fits ink cartridges etc.

    Long and short of it, it took a total of 8 hours of our engineers time to arrange for 3 different departments to do their parts. Each outsourced 'department' charged the company five times more than the engineer would have cost when he was in his old job- and he would have had the whole job done in under an hour.
    And according to the accountants- that's a saving!

    I know of a bank that 'saved' money by using a 60gb hard drive on a server when the industry minimum of the day had already reached 200gb. They actually had to go out of their way to find a server at so low a spec, costing many hours of research to do so, in order to save less than £50.
    Cost to upgrade whilst server remained live? £10k.

    There's a state of the art warehouse that was obsolete before they finished building it. £15M saved in the building costs. Cost in business in the first year? £22M. Cost to upgrade to what it should have been, when the people who knew what they were talking about ordered it? £65M Cost to replace? Another £80M.
    And here's the kicker, the bean counting manager who 'saved' the £15M got a bonus of £450k for doing so!

    I look forward to the end of the reign of the bean counters- don't let the door hit you on the way out!

  • Comment number 82.

    This seems all another 'bash the finance boys' type story.

    Surely the real issue is that other countries have designated certain sectors to be of strategic importance (this is allowed under EU rules) so their home grown monopolies can buy up companies in other more liberal countries (ie the UK - the French are a classic example of this).

    Although I am no fan of protectionism, I think certain industries need to be protected - BUT confectionary production probably isnt really one of them (I think).

  • Comment number 83.

    With regards to this topic of voting rights from ownership of shares, consider this:

    A company has 40% of its shares owned by long term holders who never let their shares go. For instance, a football club.
    60% of its shares are constantly changing hands.

    A big firm comes in, perhaps owned by a fan of a rival club. They buy 5% of the shares and announce a hostile takeover.
    Share value rises on this news, and hedge funds and the like sell on shares at a profit. Pretty soon 50.1% of the shares are in the hands of people who don't care if the club continues as a premiership team or is asset stripped into non existance- as long as they get their profit.
    Now, having owned their portions of the company for potentially as little as a few hours before the vote goes out- should they be allowed to take part?

    To me though this is a smaller part of a bigger issue with the volatility of the market.
    1) Why is anyone allowed to own a share for such a short period of time? (minutes or even seconds is allowed)
    2) Why are people allowed to buy and sell shares they don't even own, only borrowed? (short selling)

    The reason is for short term profit regardless of long term affect. It's the very basis of the stock markets volatility and lack of stability, and the ensuing boom/bust is an inevitable consequence.

  • Comment number 84.

    RE: #81

    Yes, my experiences working for a large company were very similar. The key is in the phrase "Measureable cost". If the cost of something (i.e. the cost of employing an extra person) can be measured, cutting that cost will ALWAYS trump any hidden costs that may ensue. This trend, which started in the 1990s, was inevitable in the age of the spreadsheet jockey (and incidentally back then it was one of the main reasons for the triumph of the PC over other kinds of computer: Low purchase cost, but lots of hidden setup time costs to make Windows 3.1 usable). In many contexts the sole focus on visible costs results in the death of common sense. Though we always have to remember that common sense itself is not written in stone, it can differ, depending on your vantage point.

    In your example, outsourcing may have meant that the company had to buy in the expertise it had recently made redundant: However, if that expertise was very underutilised, but on the payroll day in and day out, then even with the insanities you listed, around the installation of new printers, that state of affairs probably still made "common sense" to the mind of a bean counter.

    It's an interesting quid pro quo: In return to being elevated to the status of de-facto co-managers of companies, bean counters (well, chief bean counters - er sorry CFOs) make sure that management get all the ammo they need to present the best possible gloss on the state of the enterprise to shareholders, the workers and the public. It's a cosy little arrangement that, IMHO, has done one hell of a lot of damage globally.

  • Comment number 85.

    Hedge funds are not interested in the UK's strategic interest and are behaving much like Alistair Darling who told the FT he didn't believe in economic patriotism.

    So yes they should be disenfranchised but not just because of their behaviour in respect of Cadbury type takeovers but because few if any of them create anything new.

    Today saw an interesting report on oil and gas supply/demand issues so it's worth reminding everyone that in his report on Energy Security Malcolm Wicks didn't just say the UK Govt invested considerably less in R&D than any of our competitors but that this was in part at least a result of the UK not having a major industrial base in the energy sector and the UK having ended its involvement in the development of technologies such as wind power (now dominated by central Europe), nuclear energy (France) and solar photovoltaics (Japan). This was followed in Dec last with a report by the WWF that is the first ever comparison of countries on the basis of sales of their clean technology products. It includes the 27 EU member states and all G7 and BRIC countries. The UK came 20th.

    What would the hedge funds do about that? Answer = nothing.

  • Comment number 86.

    I think I see the pattern forming here.

    If I buy shares at 150p and sell at 400p I'm a smart investor who has made a deserved profit, and I get to crow about how clever I am at dinner parties.

    If my pension fund or unit trust buys shares at 150p and sells at 400p they're the best investment imaginable, I'm a smart investor for choosing them, and I get to crow about how clever I am at dinner parties.

    If a hedge fund buys shares at 150p and sells at 400p they're a good-for-nothing bunch of short-termists who would sell their grandmother for a fast buck and I get to gripe and moan about how unfair it all is at dinner parties.

  • Comment number 87.

    85. At 10:18pm on 10 Feb 2010, Wee-Scamp

    That's kind of what I was thinking when I mentioned Churchill in my first post. A few folk should be throwing temper tantrums and getting this sorted. Instead we've got bankers holding on the cards and all the money, threatening to leave if we don't let them carry on. We've not got Churchill, but Vince will probably do the necessaries.
    Go off to any African country and you'll see the skills.
    Kampala is awash with guys making things, modifying this and that, repairing broken machines, soldering this and that. They have little businesses up and running, charging mobile phones from solar power or car batteries, while the next business will redisgn your bike to your own specifications - great for guys transporting all sorts of goods to sell on their patch. A lot of little businesses making little bits of money, but the skills are there. They'll tick along quite nicely, while here a massive corporation needs 10 guys and 50 hours to stick simple shelves on a wall. If you can't do the little jobs, you'll never manage the big ones.

    All those funds should be banned from voting unless they've held the shares for 10 years - anyone from the funds/banks or whatever who complains is banished to a luxurious tropical atol with a max height above sea level of no more than 4 inches and the Robin Hood Tax (Bill Nighy deserves an Oscar!) will be multiplied by 10 for each negative syllable out of their mouths. The thought makes me feel better, if nothing else

  • Comment number 88.

    86. At 11:46pm on 10 Feb 2010, ThoughtCrime wrote:

    If I buy shares at 150p and sell at 400p I'm a smart investor who has made a deserved profit, and I get to crow about how clever I am at dinner parties.
    So you can do arithmetic and you crow about it at dinner parties...
    Nope, lots of other folk did a lot of hard work somewhere and you take the max profit for doing essentially nothing - you didn't add value, as WOTW has reminded us all.
    How clever are you when the next day after you've sold the shares are worth 1000p?

    If my pension fund or unit trust buys shares at 150p and sells at 400p they're the best investment imaginable, I'm a smart investor for choosing them, and I get to crow about how clever I am at dinner parties.
    Same as above....

    Gambler's down the bookies understand the game very well. My guess is the traders do too.

  • Comment number 89.

    I think its too crude a policy to have the desired effect. To protect 'British industry', don't disable 'short term investors'. It doesn't hit the nail on the head and will likely lead to more undesirable behaviour of a different type. As a Brit I agree its annoying when huge American conglomerates buy up our favorite brands and do whatever they want with them (eg cutting British jobs) but if we're prepared to take their capital in exchange for letting them own shares, why should we expect them to 'protect our interests' - however we define that in a practical sense? I don't particularly like the morality and tactics of hedge funds but they're not doing anything contrary to what we have written down unambiguously in a statute (as far as I know), they're just out to make a quid the same as the rest of us who dabble in the publicly traded share market (or get a job for that matter), only they are/were much better at it. Having said all that, what do I suggest? Well we 'Brits' need to work out whether protecting British industry (which will probably cost money) is our end game or whether it's keeping British earnings (British shareholders AND British employees) up in the longer term wherever it comes from. Who do we care for more - shareholders or employees? Do we want to protect British employees of foreign companies? Or British brands with foreign employees and god knows who as shareholders? I for one wont be buying Cadbury's chocolate bars any more even if Kraft can churn them out for 15p a go and I genuinely hope that people who will lose their job can find new ones, but i don't think crude policies like this solve the problem. Just out of interest, if Kraft opened a new factory in Britain creating 500 new jobs, raised wages by 5% across the board and increased 'US' shareholder profits by 10% (thus probably cutting other UK confectioners profits) with a net shift of cash to US, would we still be complaining? More jobs, cheaper chocolate... At the end of the day we're all ultimately fairly self-interested animals who like a good moan when someone makes a fat pile of cash and snaffles our historically British brands, especially if they're not British. For me its up to us - don't buy Cadburys/Kraft anymore, reduce the value of the brand and buy it back again on the cheap if we really love it that much.

  • Comment number 90.

    For those of us who have worked overseas in engineering/manufacturing and see how the real world is outside of the cosy world of finance - there is, I have to say, a good deal of naivety with some of the comments on here.

    Outside of the UK, just about the whole world is 'protectionist' and it is only really our own idiot/inadequate politicians that cannot see this as the people who are in UK business and could make a difference to Britain, are generally not bothered as they're too busy lining their own pockets to be bothered about the short medium or long term interests of uk plc or millions of ordinary British people.

    That's the reality. That is how and why the UK is disadvantaged by e.g negative trade hedge fund transacting and this ridiculous clinging-on to the holy grail 'open trade lie'.

    Very few British companies are allowed to purchase anything overseas - can anyone see a company trying to make a hostile bid for e.g. Boeing in the USA or Honda in Japan or BMW in Germany?

    When companies like e.g Vodaphone purchase overseas that is because there are insufficient global players and to exclude them as a foreign bidder would reduce the bids in the host countries and the valuable importation of technical knowledge into the host country. Does a comapany like e.g Vodaphone, Tesco, Stagecoach asset strip in the host country? I don't think so - and in any case it would not be allowed to do so.

    Some of the contributors on this blog need to try working overseas for a while and then post some comments when they have some real world international experience of how countries protect their selected and favoured industries.

    The good news is when the greed and ignorance has finally wrecked Britain and the UK economy has crashed and millions of people are emigrating to find work - that is when some bright spark will say...

    'I know! Why don't we disenfranchise these hedge funds and encourage our bank (if we still, at that time, have one remaining that is solvent) to leverage some of our companies to raid overseas and bring some assets, knowledge, jobs back to the UK?

    Are some pople incapable of seeing that exposing Briatin to completely unregulated globalisation, is bringing Britain to its knees and then to ruin and long term depression? The same applies to outsourcing jobs, skills and services outside of the UK. The argument is that protectionsim would drive those companies involved overseas - I say let them go and be redical and replace them with new companies and a suitable import and export strategy. This is the alternative - entrenched UK government investment in companies committed to the UK, paying lower or 'zero' rate corporation and other other business taxes.

    This isn't a single political party issue - the Tories and Lib Dems need to see the problem also!

    Is anyone so naive to think British protectionism would raise any eyebrows overseas? Does nationalist economic policy and practice hold back - USA? Canada? China? Japan? India? Taiwan? France? Germany?

    We are stagnating but we can buzz!

  • Comment number 91.


    Much of what you say is perfectly sensible then you added the last paragraph which is just plain wrong.

    Cadbury was by all reports a well run successful company and the shareholders got good value out of their dividends on an ongoing basis.
    Bids always cause share price to rise as a premium over the trading price because the dynamic has shifted not because there is any reflection over the running of the company but merely because there is now extra demand for the shares i.e. the bidder and speculators etc now want them not for dividends but for capital gains.
    Some premium comes from the expectation that combining businesses gives greater economies of scale i.e. savings which cannot be realised by either alone (this is why bidders shares also can rise during a bid unless the market believes this is not the case or they are offering too much when they fall).

    So the fact a share price rises and how much is the result of the dynamics of the bid (both target and bidders situations). This bid was percieved to be one where Kraft were very very keen to buy and could be forced up to a very high premium.

    Buffet believes the deal is a bad one i.e. Kraft have paid too much.

    You cannot argue that Cadburys management was poor because the bid price was far higher than prebid price especially as the bidder in this case is seen to have paid too much and will be unlikely to realise a return on that in the short term.

  • Comment number 92.

    #84 Alan T

    Totally agree. To add, in general, the focus on 'growth' based on continued expansion of the money supply pushed optimisation into second place.

    The positive aspect of austerity measures across the board should be that once the current generation of thinkers and management lose their positions, those who know how to optimise and improve will become the decision makers.

  • Comment number 93.

    I don't have much sympathy for this point of view.

    If you take the Cadbury case as an example, someone had to sell the shares to the hedge funds in the first place. Every transaction has two sides. For there to be buyers there have to be sellers.

    Clearly those who sold their shares to the hedge funds did not have faith in the long term success of Cadbury as an independent institution. Or, put another way, they valued the immediate returns of the higher cash value on offer for their shares more than the potential future profits from an independent Cadbury, or the possibly higher cash value of the shares if a bid was successful.

    In effect, the previous owners of the shares that were sold to the hedge funds had already voted on the bid ... with their feet.

    To disenfranchise the hedge funds would, in effect, disenfranchise those who are willing to sell their shares to them.

    Restricting the voting rights of recent purchasers is just another way for the managers of a company to avoid their responsibilities to the owners of that company. It's not just an issue of competence. It's a question of interest. If the interests of the owners don't correspond with those of the management of a company, the owners need to be able to take action against the management. Selling your shares during a bid is a reasonable course of action if the management is acting against a takeover that you favour.

  • Comment number 94.

    This would be the Cadbury that was paying its corpate taxes in Ireland then ?

  • Comment number 95.

    91. Whistling Neil

    Yes, I was maybe a bit harsh on Carr & Co for mismanaging Cadbury. However, see it in the context of Carr's call, essentially, for state protection of incumbent management against hostile bids where outsiders believe they can unlock value. I see no reason for providing such protection.

    I guess my real issue with Carr & Co is why they failed to unlock some/all of the value Kraft feel exists in Cadbury. Carr & Co ought to have been looking at corporate restructuring as possible options for this, even including looking to merge the entire company with someone else. All the indications are that they did not consider this until Kraft came along. Certainly the attempts to find alternative partners during the bid period looked very amateur.

    Having said all that, Carr & Co did an excellent job with the defence against Kraft. They got them up to 850p/share, when the consensus early on in the bid was that not much more than 800p/share would take out Cadbury.

  • Comment number 96.

    We need a change in the law to put a third of the seats on the board in the hands of the workforce as the current law disenfranchises this group of stakeholders. A delay in the ability to vote shares and an additional charge on share sales in less than, say, three months would make for more measured decisions.

  • Comment number 97.

    The 'nationality' of businesses does matter. For example BOSCH recently closed a factory in Wales. Now if this company had no national allegiances it would not have chosen to close a factory in the UK considering that it is now, and for the forseeable future, cheaper to manufacture here due to the devaluation of the pound. This decision made no commercial or strategic sense. The alternative was probably a factory closure in Germany. So you'll have a board of directors all German making a decison on which factory to close, unsurprisingly they decided on the one in the UK. This is why it matters as to who owns businesses. I don't know of a single business that is truely independent without a national allegiances.

  • Comment number 98.


    Has it ever occurred to you that maybe whatever Bosch were making in Wales wasn't selling? In such a case it realy doesn't matter whether Welsh workers are cheaper than German or anyone else, revenue will be less than cost, and production will be uneconomic.

    I suspect you will be rather surprised to learn that many (German) companies require staff to speak good English. Failure to do so is a very career limiting move. All VW's Board meetings, for instance, are conducted in English, even if all the people present speak German as their first language.

    I can only assume the Luftwaffe bombed your local chip shop during the war to explain your anti-German bias.

  • Comment number 99.

    If you've ever been to Wales you'd understand why they closed their factory!

  • Comment number 100.

    I would weigh in on this one... except that

    the word "disenfranchised" usually has more to do with voting than economics or finance markets. Which makes the question sort of strange looking.

    I'm not even sure what we're asking here.
    Limit political contributions? Different taxation levels? Higher/different regulation compliance? What? (and the answers for those, no, no, and no).

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