Cadbury forced to choose between a hard or soft centre

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Now Britain’s takeover watchdog has set a November 9 deadline for a formal offer for Cadbury, Kraft has two options if it wishes to proceed: a firm, no-nonsense approach – call it the Crunchie, after the UK confectioner’s hard, honeycomb-centred bar – or a slow, melt-in-your mouth approach, like the soft, textured Cadbury favourite called Wispa.

If it chooses the Crunchie, Kraft will wait until the Takeover Panel’s deadline is nearly on it and fire in a hostile proposal, putting Roger Carr, Cadbury’s chairman, on the spot and inviting shareholders to bite. If Kraft does a Wispa, it will use the next six weeks to soften up Cadbury and its investors with another informal approach, tempting Mr Carr to come to the table and negotiate. Kraft could simply walk away from the candy store, of course.

Alternatively, if it is certain that there is no white knight at hand with a rival offer, it could avoid bidding against itself and buy additional time by lodging a formal offer at the current level – rather as the consortium bidding for BAA, the UK airports operator, did in 2006.

The consensus is that the panel’s “put up or shut up” notice obliges Kraft to take the next step. It is true that the Kraft share price has fallen since Irene Rosenfeld, its chief executive, announced the approach on September 7. That has only sharpened Cadbury shareholders’ appetite for a higher offer, sweetened with additional cash.

But Roger Carr, Cadbury’s chairman, has a sticky Crunchie-Wispa dilemma too. If he’s too soft, Kraft will secure valuable brands cheaply. If he’s too hard, he could be left with no offer at all. In spite, or perhaps because, of the tactical slip-up last week by his chief executive Todd Stitzer (who had to deny he had softened his attitude to a deal with Kraft), Mr Carr is showing no sign of melting. That would suggest that Kraft’s best tactic for now is to stay Crunchie.

Down to earth talk

Manmohan Singh, India’s prime minister needs to get serious about confronting the severity of the crisis facing Air India, the ailing national flag carrier.

Far from just temporary problems caused by tough global operating conditions, Air India is sinking under the weight of its 32,000 employees – a workforce aviation industry experts say is about twice as big than required.

Today’s Air India was created three years ago by merging two separate state-owned airlines, Indian Airlines, a largely domestic carrier, and Air India, the international carrier. The aim was to reduce costs and generate efficiencies, amid intensifying competition from nimble private Indian carriers, and foreign rivals.

But India’s government – ever sensitive about job losses, potential labour unrest, and inconvenience to passengers – was unwilling to follow through to the logical conclusion of shedding staff.

In June, Air India finally came to Mr Singh, cap in hand, appealing for fresh funds, after a cash crunch forced it to delay payment of $70m in salaries. But Mr Singh said he would grant the money only after the management produced a credible turnround plan to return to profitability.

That looks unlikely after this week’s debacle, when the government overrode Air India’s decision to cut the salaries of its highly paid staff, and ruled out a lock-out when workers went on strike. Until New Delhi can take tough decisions, Air India’s sharp descent will continue.

Incentives to consolidate

Growing signs of economic recovery in Europe have buoyed the continent’s temporary employment groups, such as Adecco and Randstad. More tantalisingly, the upturn has rekindled M&A talk in a still highly fragmented sector. Late last week, speculation was rife that Adecco, the market leader, was stalking USG People of the Netherlands.

Adecco’s agreed bid in August for the UK’s Spring Group, a professional employment services specialist, will certainly not be its last. Scale is important in “temping”, whether for mass market clerical and blue-collar business, or higher margin professional staffing.

What is holding back many potential acquirers is stretched balance sheets and, in some cases, tough bank covenants. Even Randstad, the Dutch group that is Europe’s number two, is hobbled by the €1.5bn ($2.2bn) of debt assumed through its acquisition of local rival Vedior.

But more deals look inevitable as smaller groups feel the squeeze. Experience shows that, during recessions, bigger companies win market share at the expense of smaller rivals. And profitability tends to be highest in countries where groups have the highest market shares – two mighty incentives for consolidation.

world.view@ft.com

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