Kraft facing UK regulatory probe over Cadbury deal?

A report suggests the Takeover Panel is looking into claims that Kraft misled investors to secure Cadbury.

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Last Updated: 06 Nov 2012

Just when Kraft thought the Cadbury controversy was behind it, the whole can of cheesy worms may be opened up again: the Wall Street Journal says that the US food giant is facing an investigation by the UK Takeover Panel, over claims that it lied about its plans for Cadbury’s Somerdale plant to make sure its takeover got the thumbs-up. Kraft’s claim – that on closer inspection, the process was just too advanced to reverse – certainly sounded fishy, but we suspect it will be tricky to disprove. And the Panel doesn’t really have the power to do much about it. An official probe would mean yet more bad publicity for Kraft. But will it care?

The bone of contention is whether Kraft knowingly misled investors about the fate of the Somerdale plant. Its officials claimed throughout the takeover process that Kraft would try and save the factory - and since Cadbury was planning to close it down and shift production to Poland, this clearly helped win its unpopular bid a few friends. However, Kraft rapidly changed its tune once Cadbury shareholders had signed on the dotted line. Last month it said that it would cost too much to halt the closure process, so the plant would indeed shut by 2011.

With the best will in the world, this doesn’t look good. If you’re going to make emotive claims like this (with the possible consequences for hundreds of jobs), it’s doubly important to be able to deliver on your promises. Could Kraft really have gone through the entire due diligence process pre-deal without realising how far advanced the closure process was, or how much had already been spent on it? At best, this seems a bit incompetent. Now it seems the Takeover Panel may be planning to investigate the other alternative: that it was being deliberately misleading.

It wouldn’t surprise us if the story was true: after the Government's empty rhetoric was exposed as such during the takeover battle, it will be itching for a chance to put the boot into Kraft. On the other hand, even if the Panel can somehow prove that Kraft misled investors, it probably can’t do much about it. It doesn’t have the power to cancel the whole deal and make Cadbury independent again (much though many of us would love to see that happen); in fact, the Journal reckons its stiffest sanction would amount to little more than a slap on the wrist. And although it will only add to the negative publicity around the deal, will it really convince people to stop eating Dairy Milk? We can’t see it.


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