Does the Cadbury deal suggest we need to think again about the UK’s approach to M&A? That was the implication of a speech by outgoing chairman Roger Carr in Oxford last night, just as Kraft was performing a hasty U-turn on its promise to save the Cadbury factory near Bristol. Although he insists he did the very best he could within the confines of the current rules, Carr reckons we need to limit the influence of shareholders with short-term investment horizons (i.e. those pesky hedge funds again) – possibly by insisting that anyone who buys shares during a takeover battle shouldn’t get a vote on the outcome. Oh, and the Government should put up or shut up…
Carr insisted that his sole job was to get the best possible price for Cadbury shareholders – and by holding out for a price of 850p, he forced Kraft to pay a premium of about 50%. However, he admits that the deal raises broader questions about the takeover process. Cadbury shares were disproportionately owned by North American institutions – many of whom ended up selling out to short-term traders and hedge funds during the offer period. About 26% of the company changed hands this way, and since the new owners' priority was a quick profit, it basically made the deal ‘a self-fulfilling prophecy’. Carr insists he’s a free marketer at heart – but worries that ‘something has happened to tip the playing field (sic) towards short-termism’.
So what’s the answer? How do you stop short-term investors pushing through hostile bids, with all the disruption and cost that entails for both sides? Carr reckons more transparency over changes to the share register would help, as would raising the threshold for acceptances to 60%. But his most radical suggestion was to block anyone who buys shares during an offer period from voting on the outcome. As for the Government, he reckons it needs to say in advance if it’s opposed to a deal and develop an instrument to block it – as opposed to whingeing from the sidelines, stoking up public opposition for political gain.
That said, Kraft seems perfectly capable of alienating people all by itself: it said yesterday that it will close Cadbury’s Somerdale factory, despite previously pledging not to. It’s not so much that Kraft is closing the plant (after all, it was Cadbury’s idea, and we can well believe it’s too advanced to reverse). It’s the fact that it promised not to at the height of the takeover battle. That now looks like a cynical ploy to rally support – a sure-fire way to get on the wrong side of staff, unions (who say they warned Kraft about this) and public opinion. The only consolation is that at least it’s exposed the empty rhetoric of the Government (a red-faced Lord Mandelson has been bleating that Kraft made no mention of this to him last week).
But even if you agree that politicians should keep their noses out of takeover battles, Carr may have a point that the current system is too heavily-weighted in favour of short-term profit-takers...
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