Kraft Takeover Of Cadbury

By Author: Henry Ford
Total Articles: 189
Comment this article

Communication in a business or a company is very imperative as it determines the productivity of that company. Lack of adequate corporate communication usually results to low productivity as there is always a conflict between the top management, employees, customers, and the entire shareholders. Basically, there is lack of communication where one group is not involved in decision making and hence the future of that company is at jeopardy. When companies are merging or one company takes over the other, it is very hard or difficult to know what is required in order to bring about success. A good example is the case of British chocolate manufacturer and marketer Cadbury by the United States international food processing company called Kraft. In this respect, when two companies merge there is usually change of management and hence the employees may feel that they are not motivated or satisfied as it was the case therefore and hence decide to quit. Cadbury and Kraft companies were both performing well before they merged but this performance started to sour once they merged. This is because the process of taking over was not conducted ...
... with great considerations. In this case, all shareholders were not involved in the process and hence the whole process was not complete.
According to Griffin (2011), exactly one year after the takeover, the history of the two companies changed drastically and the results of the takeover were not what were expected by the Kraft Company. All the papers in the whole country indicated that the British lover chocolate company was going to be swallowed by Kraft which is a United States based confectionery company. The shareholders still had to approve the £11.7 billion takeover early in the year 2010, but this was not waited as the takeover had already completed (Bow 2010). This means that the shareholders were not well informed about the processes of taking over and hence were still waiting to approve it. Kraft Company had already paid off some amount of money for a period of six months and Bournville was to be sold with other part of the empire. Things started worsening when the shareholders realized that the company had been taken without their full consent and hence the management of this company was to be fully taken by Kraft Company. In the year 2010 in January 12, Cadbury had encouraged its shareholders to resist the offer laid by Kraft Company of taking over Cadbury. As indicated by Griffin (2011), in September 2009, the chairman of Cadbury had publically showed his unwillingness of approving the Cadbury Company being absorbed into Kraft Company’s low growth corporation business strategy. It was believed by this chairman that Kraft was low performing as compared to Cadbury and that Cadbury was heavily loved by customers all over Britain.
Kraft Company raised its stake from £9.8 billion to £11.7 billion and hence Cadbury directors caved in. this time the board of directors seeing that the amount of money has increased decided to go by the decisions of the Kraft Company. It should be noted that there had been long executive meetings in the United Kingdom since Cadbury Company’s board of directors had not agreed on the price. The approval of taking over of Cadbury by the board of directors following increase of the price was not waited for the other shareholders to approve and this is what the major source of the merger’s problems became (Bow 2010). The chairman and one director (Roger Carr and Todd Stitzer respectively) since they opposed the plan were given huge pay offs in order to ease their pain.
The Kraft Company was interested in taking over Cadbury because of its high performance and good heritage as can be seen from the words of the Kraft chief executive officer reported in Financial Times. A point worth noting is that, according to the United Kingdom rules concerning takeover, bidding companies are required to sanctify the process of bidding from an initial pinpointing and discussion process (Jones 2010). The most astonishing aspect about this takeover and one that led to its low performance after a period of one year is the fact that communication between the board of directors and shareholders was not very effective. In this case, the corporate communication issued to the shareholders was not effective. In any organization, before a decision is made it is very imperative for the top management (chief executive officer and the board of directors) to engage the shareholders by offering effective communications to the company’s internal and external publics. When employees are involved in a decision making they usually feel as being considered as part and parcel of the company and hence they work hard in order to achieve organizational goals and objectives (Goodman 1994: 2).
It was very ironical for the Cadbury Company chairman to announce that they had achieved a very good price for shareholders. If the shareholders were involved in the discussion, they could have raised other issues that would have resulted to discouraging the process of taking over. In the case of Kraft taking over Cadbury, employees and customers complained after one year that the company’s management has failed by selling not just a British company but also a famous British brand (Bow 2010). This was countered by the company’s chairman when he indicated that the company was not only for the British but for the whole world and its products were admired globally. The chairman additionally stated that Cadbury was not loved much by British investors (28%) as it was the case for American investors (49%) (Jones 2010). The lack of effective corporate communication to the publics resulted to the company failing to fulfill the promises it made when allowing the takeover. In this case, Kraft Company had promised that it would keep open a Cadbury factory near Bristol. After the takeover, Kraft changed its decision and this led heated communication not only in the media but also in the parliament. The point of consideration here is, if the employees and other shareholders were involved or were communicated about the issue it would have been very easy to convince the public but in this case, the shareholders were against the top management.
As indicated by Wiggins (2009), Cadbury members of board through their chairman vowed to fight the offer of absorbing it that was provided by Kraft Company. This was heavily involved the shareholders where they were told that they should not allow their company to be absorbed by the American confectionary. In the year 2009, Kraft Company made an opening offer of £10.2 billion which was based on a 745p per share. This offer was not accepted by both the management and shareholders of Cadbury Company and hence the company was not approved to be absorbed. During this period of time there was a very good and effective communication between the management and shareholders. This corporate communication brought about the decision that Cadbury should not be sold to Kraft Company. According to Wiggins (2009), the chief executive officer of Kraft Company was reported in Financial Times saying that Cadbury was as a portfolio of much loved iconic brands which have very strong heritage. This is very true since the chairman of Cadbury Company was heavily criticized for letting a beloved British company to be absorbed by an American company. It was reported that the management of Cadbury was similar to that of Kraft as it was heavily focused on shareholders. This was the case before the takeover was complete since Cadbury management failed to engage its shareholders in decisions concerning the absorption by Kraft Company. It therefore goes without saying that the management of Cadbury involved or focused on shareholders in order to get benefits.
It is of importance to note that the shareholders had not approved the £11.7 billion deal imposed by the Kraft Company but the management was convinced to allow the takeover to take place. As indicated earlier, the United Kingdom rules and laws governing the process of bidding do not allow a bidding company to destabilize the market condition of a quoted company for a long period of time (Griffin 2011). As can be learned from the case study, the Kraft Company made an unsolicited bid when it was only four hours before the deadline. This shows that the process of communication was adequately effective. In this case, the Cadbury Company management had not enough time to communicate to the shareholders in order to listen to their views. This resulted to decision being made against the will or desires of the shareholders. It is clear that if the bid was place early enough the Cadbury management would have time to make decision with all shareholders.
Basically, lack of effective communication led to a lot of problems facing the takeover after a period of one year (Wiggins 2009). The offer of Kraft Company was 300p per square plus of the company’s shares which was 0.29 per Cadbury share equal to 717p for every share. According to the information provided by Financial Times, the Kraft Company had raised a lot of money from other banks in order to fund the takeover (Lucas 2011). This shows that this company was highly interested in taking over Cadbury Company as a way of improving its performance. This was provided by Kraft was seen as bring about a lot of pressure in decision making as most shareholders were against it (Lucas 2011). It is because of these heated discussions that resulted to shareholders being left out when making final decisions concerning the takeover. It can therefore be indicated that, all problems of the takeover were brought about by lack of communication between the top management and shareholders (Goodman 1994: 2).
As clarified by Griffin (2011) in the Financial Magazine, the chairman and chief executive officer of Kraft Foods in the year 2009 commented on the publication of offer documentation and indicated that, Kraft Company is very confident the takeover would be very successful as the two companies are good in terms of performance. This was stressed in order to convince the shareholders of Cadbury Company to accept the offer made by the Kraft Foods. In this case, this statement indicates that the takeover was the best interest for the shareholders of the two companies. The Cadbury Company’s shareholders were not adequately convinced on the importance of the takeover and hence they had not fully accepted the takeover. This was so because the method of corporate communication that was used was not effective to the extent that shareholders would be involved in the final decision making process (Jones 2010). In the month of December the year 2009, Kraft Foods raised its offer to 360p in cash in order to win the favor of Cadbury Company. In January the year 2010, those people opposed to the takeover in Cadbury Company responded to the Kraft’s bid referring it as ridiculous. This indicates that they were not interested in supporting the takeover and hence Kraft Foods had to increase its offer. The most astonishing thing in this respect is the fact that those people opposing to the takeover who were mostly the shareholders were not effectively communicated to when the final decision was being made (Wiggins 2009).
According to Goodman (1994: 1), any organization has to have good communication strategies in order to prosper and increase its productivity. Corporate communication is the total of an organization or company’s effort to effectively and profitably communicate to its shareholders. It should be noted that when shareholders are involved in decision making through good corporate communication they are in a position to effectively work for that company. This was not the case in the takeover of Cadbury Company by Kraft Foods. In this case, shareholders were at the first stages of negotiation requested by the management to avoid allowing their company from being absorbed by another company.
The concept of corporate communication outlined by Goodman (1994: 1) indicates that employees, customers, board of directors, and the chairman or the chief executive officer should all have a same voice when it comes to making decisions of a company. In this case, decisions made should be in such a way that they benefit all parties involved in decision making. Looking at the case of Kraft Foods taking over Cadbury Company, it is clearly indicated that corporate communication was not effectively and profitably used. This is so because shareholders who were waiting to approve of the £11.7 billion offered by the Kraft Company were not involved in the final decision making process (Bow 2010). This indicates that the takeover was completed without the consent of shareholders. This practice brought about a lot of problems both to the shareholders of Cadbury and the parliament. The reason of arising of these problems was because the promises that were made by the Kraft Foods on Cadbury shareholders were not fulfilled.
In most case, the action taken by any organization or corporation in the process of making profits or achieving set goals and objectives usually depends on the larger part of the character of the corporation and its relationship with shareholders. This shows that a company usually prospers in its undertakings when it has a good relationship with the shareholders (Goodman 1994: 2). This same case applied to the Kraft Foods taking over the Cadbury Company. In this respect, since the top management of Cadbury Company soured the relationship of this company withy the shareholders, one year after the takeover, as reported by the Financial Times, the combined company started losing very important staff members. This resulted from the fact that, the promises that were made by Kraft Company were not fulfilled and hence employees and other staff members were not impressed at all (Lucas 2011).
Organizational culture is very imperative to any organization and therefore employees are in a position to perform better following the guidelines of their organizational culture. In this aspect, when two organizational cultures are merged together there is always a confusion of which culture to follow. This is evident from the case study where in January 2011, twelve employees who were formally working in the merged organizations pointed out that Cadbury under Kraft Foods was not the best choice and that there were a lot of problems that emerge from large mergers and acquisition (Lucas 2011). In short, the merging of Cadbury and Kraft Company has brought about a lot of problems and negative publicity like employees transferring to other companies because of the confused management and lack of fulfilling the promises made to shareholders.
In conclusion, the concept of corporate communication is very imperative in any corporation as it is the prime determinant of the productivity and profitability of that corporation. As can be learned from the case study of Kraft Foods taking over Cadbury Company, lack of effective corporate communication brought about negative publicity and loss of staff members.

The author is associated with

The author is senior writer at https://www.allacademicanswers.com