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Hostile bids and chocolate bars: the takeover of Cadbury

Roger Carr discusses the lessons learnt from Kraft’s acquisition of Cadbury

Monday, 17 May, 2010

Roger Carr is a well respected deal maker, a self confessed free marketeer and vehement anti-protectionist but his world view was shaken when, as Chairman of Cadbury, he was on the other side of the fence, battling against a hostile takeover from US confectionery giant Kraft. Mr Carr now believes that a debate should be had over the UK’s takeover code, and the designation of some UK businesses as takeover-proof strategic assets’.

An audience of City grandees, academics and students gathered, by invitation of Cass’s M&A Research Centre, to hear Mr Carr provide an intimate picture of the real story behind Kraft’s bid for Cadbury. He first dispelled the myth of Cadbury being a British business, far from being a national treasure the appetite for Cadbury shares in the UK was limited, the stock was simply not owned by a large number of mainstream UK institutions and its corporate reputation was fragile.

At the start of last year Cadbury was on an upward curve having recovered from a long period of underperformance, so it did not need, nor would it have welcomed, a bid.  It was a shock to the market, therefore, when in August 2009 Kraft launched its hostile takeover bid.

The initial bid from Kraft sparked a 40% jump in Cadbury’s share price which many shareholders took advantage of by selling stock, a large proportion of which was bought by short-term investors, such as hedge funds. Indeed 44 days after the initial bid, 31% of Cadbury was owned by these short-term investors who were motivated by the promise of a quick profit.

The protracted timetable of the bid combined the threshold for the acceptance of takeovers specified in the UK Takeover Code helped Kraft’s takeover, albeit at an impressive 50% premium on the value of Cadbury at the start of the bid and yielding the highest such premium in recent history in the UK.

Mr Carr argued the Kraft / Cadbury deal demonstrated that the following adjustments to the UK Takeover Code could be considered to level the playing field in a hostile bid situation:

 A tightening of the bid timetable to ensure that bear hug’-style bids are not permitted to unreasonably extend the 60 day bid timetable.

 A reduction in the level at which movements in shareholdings both direct and through derivatives have to be formally disclosed from the current level of 1% to 0.5%. This would provide greater transparency of a shift in the register whilst a bid is in progress.

 An increase in the acceptance level for takeovers to above 50% in order to minimise the risk that short-term shareholders would overwhelm the wishes of a committed longer-term shareholder base by simple majority. 
Mr Carr suggested that the history of foreign takeovers of British businesses, such as BAA, Corus, ICI and P&O, has highlighted the possibility  of  some firms to be considered strategic assets’ making them effectively takeover proof, a practice common in countries such as France, Germany and Japan and the USA.

In conclusion, Mr Carr said, The UK is a huge earner from companies owned abroad and British companies have been as successful as predators as they have fallen as prey If you are in government, you need to have a policy that defines strategic assets in advance, encourages stewardship with taxes and together with the Takeover Panel sets the rules. If you are in business, you must then live by them.

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Roger Carr addresses the Cass crowd
L-R Richard Gillingwater, Dean of Cass Business School; Roger Carr; and Scott Moeller, Director of the M&A Research Centre (MARC)

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