Framed by politicians, trade unions and even Cadbury itself as an unwelcome siege by a US food conglomerate on a beloved British company, Kraft chief Irene Rosenfeld was always going to struggle to win over her detractors when she finally bought the confectioner this year.
But she also did not help her own cause. Just weeks after signing the £11.7bn deal and assuring stakeholders that Cadbury would “thrive” under Kraft Foods, Ms Rosenfeld broke her pledge to keep the Somerdale factory in Bristol open.
Saving the plant from closure had been a central plank in Kraft’s efforts to win over hostile Britons; the about-turn provoked fury.
Peter Mandelson, Britain’s business secretary, slammed Kraft for its lack of “straight dealing” over the affair, while politicians summoned company executives to parliament for a two-hour mauling before issuing a damning report on the takeover.
“Kraft will now have to invest significant time and effort into restoring its reputation and regaining the trust of the public, its UK workforce, government and ourselves,” said the report.
The Somerdale debacle has undoubtedly been an unwelcome sideshow to the business of swallowing Cadbury, with its £5.5bn of sales, for Kraft, a food conglomerate five times its size.
But there is obvious strategic sense to the deal, with clear operational overlap between Cadbury’s European chocolate businesses and Kraft’s, which already include Milka, Toblerone and Cote D’Or.
Kraft is confident that it can use the enlarged group to drive profits, promising to deliver earnings per share growth of 9 to 11 per cent in the next three years, compared with 7 to 9 per cent before the deal.
Kraft is going to use Cadbury’s footprint in India to boost sales of its other products in the region, while using its own network in places such as China and Russia to develop Cadbury’s sales.
“There is a lot of cost overlap most obviously in Europe,” says Martin Deboo, analyst at Investec. “But in the areas where they are looking for cross-sell synergies and developing markets there is more risk.”
It has also targeted $675m (£442m) of annual savings by the end of the third year, with $300m coming from productivity gains such as sharing trucks and factories; $250m from general administrative cuts and another $125m from marketing synergies. Kraft will give further details on the timing of these cuts this week when it releases quarterly earnings.
While it its too early to judge Kraft’s success, analysts point out that the US maker of Oreo cookies and Dairylea cheese has a reasonable report card, having managed its $7.6bn integration of Lu Biscuits from Danone two-and-a-half years ago without any negative fall-out.
But the matter of integrating Cadbury, a 186-year old British company with Quaker roots, is more delicate.
Those close to Cadbury point out that the confectioner, a proponent of ‘principled capitalism’, has a distinct corporate culture that puts ethical behaviour at the heart of its strategy.
“Overall there was a feeling in Cadbury that trying to behave in an ethical way was good for business,” says one former board member.
“Internal surveys showed that staff were really happy to be working for Cadbury and thought it was an important corporate citizen,” adding ominously: “I am not confident about the deal but I hope my scepticism is unfounded.”
So far Kraft has not acted like an overbearing owner. It has been privately applauded by union representatives for not meddling in the Cadbury pension consultation, already under way before the hostile takeover. Neither has it interfered with Cadbury’s effort to open a chain of Cadbury cafés in the UK.
But the process is inevitably painful for Cadbury as the central office, once the nerve centre of a global business, is relegated to a tiny piece of a far bigger beast.
“The UK is now just part of the European region. To be headquartered in Zurich [Kraft’s European head office], you have to demonstrate that a certain amount of intellectual capital is generated in Switzerland. Does the business start to lose its identity?” asks a former Cadbury employee. “The UK was the birthplace for Cadbury even though it is global. The UK wasn’t a branch office, it was at the heart of everything that went on.”
That power shift was shown to have an impact last month when Phil Rumbol, Cadbury’s marketing director, who presided over a creative renaissance in the company’s advertising, quit after deciding he did not want to relocate to a bigger role at Kraft in Zurich.
Kraft points out that it has, in the main, stemmed the outflow of talent, keeping 12 of Cadbury’s most senior executives on board – for now at least.
Significantly, Trevor Bond, a well- regarded veteran who ran Cadbury’s UK and Irish businesses, has been given a bigger European role in the enlarged group.
“Throughout the company, out of the top-50 executives within Kraft, about 30 per cent are Cadbury people. From a talent perspective that is good,” says Mike Mitchell, external affairs director at Kraft.
For its part, Kraft is desperate to draw a line in the sand on Somerdale.
“I would really ask people to judge us on our actions because I think you will see that we do want this to be about growth,” says Mr Mitchell. Its peace offering was a promise not to make any further jobs cuts in Cadbury’s manufacturing base for the coming two years.
Politicians and workers will be watching carefully to make sure that this time, Kraft honours its word.
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