Cadbury boosts Kraft - but is the reverse true?

The controversial takeover appears to have worked out for Kraft, but the same can't be said for Cadbury...

Last Updated: 06 Nov 2012

Kraft, purveyor of squeezy cheese and latterly controversial acquirer of Cadbury, has announced a big jump in profits – boosted in no small part by said takeover. The company’s second-quarter profits jumped to $937m (£590m), up from $827m during the same period last year, while revenue rose by just over a quarter to $12.3bn. But while Kraft’s senior execs – who now supposedly include a number of ex-Cadbury staff – are no doubt indulging in some vigorous back-slapping, Cadbury workers might be excused for feeling nervous again. Having already broken at least one of the promises made during the takeover process, by closing the Keynsham factory, Kraft boss Irene Rosenfeld is now hinting at further cuts…
According to Kraft’s figures, absorbing Cadbury helped it to boost revenues by a third in Europe, when it would otherwise have seen growth of just 2%. And the deal’s impact was equally marked on Kraft’s home turf in North America: instead of revenues falling by 1.9%, they actually rose 6.3%. Perhaps our trans-Atlantic chums are finally embracing the fact that chocolate doesn’t have to taste like cardboard.
But while Kraft is clearly better off as a result of the deal, things look a lot less rosy from Cadbury’s point of view: Kraft has also just increased its estimate of its potential cost savings from the deal from $675m to $750m, which means even more job cuts could be on the way.  Apparently, ‘aggressive’ promotional activity by US rivals in the cheese, biscuit and salad dressing markets means Kraft is going to have to make extra savings so its brands can compete. ‘We’re just not going to continue to tolerate (market) share losses,’ said Rosenfeld. But somehow, we’re not convinced that Cadbury staff who lose their jobs will find much consolation in the fact that Oreos are still flying off the shelves.
More cuts won’t do wonders for Kraft’s reputation in the UK, either. It’s already got into hot water by closing Cadbury’s Keynsham factory – at the cost of 400 jobs – having previously promised not to. Although to be fair to Kraft, it did apologise for ‘disappointing’ workers – proving that in the short time since they’d been in the UK, the Americans had at least managed to master the British art of understatement.
Still, perhaps this isn’t any real surprise: there never seemed much of an upside for Cadbury in this deal, unless you happened to be a hedge-fund who’d bought the shares on the cheap. Kraft bought it precisely to compensate for its own lacklustre growth; but if it now cuts too deep, it’s in danger of killing the goose that laid the golden egg. It’s classic dysfunctional takeover logic – and provides another reason to have a long hard look at the UK takeover rules, so that the long-term interests of companies like Cadbury are better represented.

In today's bulletin:
RBS back in the black - by the skin of its teeth
Cadbury boosts Kraft - but is the reverse true?
GM raises the stakes with 'lifetime warranty' on new cars
Editor's blog: The difficulties of mega-philanthropy
One-in, One-out: Government promises no more red tape

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