The Incentives of Kraft to Take Over Cadbury
Abstract
Following transformations in the business sphere, the Cadbury Company had to be taken over by Kraft who assured the public that the Somerdale factory in Keynsham would be kept open. However, challenges arose and therefore Kraft could not accomplish the promise made. This raised a lot of concern from both the public and the clients at large. This paper will look at the effects of the closure of the Somerdale factor, how Kraft tried to regain the respect for the company through a number of strategic plans put in place. Also of pertinence is the methodology used to carry out the research, which offered data that is free from any form of bias. Findings will then be discussed according to the research conducted. The paper will finalize by offering some recommendations that if implemented would cut down on the numerous flaws experienced within the company because of poor corporate governance (Buffett & Clark, 2010).
Introduction
The taking over of Cadbury by Kraft has proved to be an action that is likely to transform the future public policy concerning takeovers and corporate governance. The action was particularly marred by the controversies about statements made by Kraft concerning the future of Cadbury’s Somerdale factory, which was set to be closed. The public particularly lost trust in Kraft after she had shown that the takeover would maintain the factory open and yet it is supposed to be closed after having dominion over Cadbury by Kraft. Following this action of closing the Somerdale Factory by Kraft, it can be deduced that the takeover of the company was simply decided by institutional investors motivated by short-term profits but not individuals who had long-term investment interests for the company (Franzen & Moriarty, 2008). The research paper therefore ventures into the discovery of the rationale behind the closure of Somerdale factory by Kraft, consider the plans of Kraft for the company at large, and the effects of the takeover policy in relation to the action take by Kraft to close the Somerdale factory. This will specifically admonish the action of Kraft making statements about the factory that she was well aware that they may not accomplish.
Literature Review
The Closure of Cadbury’s Somerdale Factory
A research carried out on the background information of the Somerdale factory reveals that the factory came into existence 75 years ago after the merging of JS Fry & Sons with Cadbury, a period in which the factory began its production. The business was then moved from Bristol to the newly formed Somerdale factory in Keynsham. It was not until 3rd October 2007 that Cadbury announced its intentions of closing the factory. According to Tappin & Cave, 2010, this had an implication that five hundred jobs could be lost, as the factory’s production would be moved first to the Cadbury Company’s Bourneville plant in Birmingham, then to a new plant in Poland by 2010. All of the initial brands of the Somerdale factory were set to be produced at the new plant in Poland, which included Curly Wurly, Fudge, and Turkish delight among others. However, the concerns by the public made Kraft to re-state her position on the closure of the Somerdale factory since this was the only beneficiary for the Keynsham people. Loss of their jobs could demoralize them affecting the reputation of the company on the universal market scene. This was still not adhered to because a week after finalizing the takeover, Kraft again announced that it would not maintain the initial decision of keeping the Somerdale factory open after talks with the senior management of the company. This further raised a lot of criticism from the Unite, which accused Kraft of “a cruel manipulation” according to the Unite, the earlier commitment of Kraft was simply a cynical ploy to gain favour for the bid.
To give an explanation about the decision taken by Kraft in reversing the announcement earlier on made, Marc Firestone, executive vice president explained that Kraft only believed that the company could keep open both the factory in Somerdale and in Poland to provide services for Cadbury’s then production needs and expanding of production requirements in Europe. According to him, the action was just a rational business plan and it was only after the takeover had been completed did Kraft learn that the company had transferred specialized machinery to the Polish factory only aimed at producing particular chocolate products in the UK market. Grant & Pederson, 2007, asserts that, it was realized that before the announcement to keep the factory open, a number of factors were unknown to Kraft even though Kraft had conducted significant research about the Polish Factory. He asserted that it was in order for Kraft to make such announcement since they had strongly believed that their plans would push through. Since the plans were not accomplished, the reputation of Kraft was damaged in the UK as well as with the workforce in the Cadbury Company who had risked losing their jobs following the decision.
Kraft’s Undertaking in Respect of Cadbury
Because of the announcement of Kraft to keep the factory open and not accomplishing the same, the company’s reputation in the UK market was marred. This resulted into the management team of the Cadbury Company to strategically plan for the healing process of the company. The team was set out to do some changes and maintenance activities within the organization so that the trust from clients could be won back. Some of the plans are only to be realized over a period and therefore required monitoring from the Department of Business, Innovation, and Skills.
Basing on Shilling, 2010, the first area to be looked at is the brand management. The management team sought to maintain the Cadbury brand as well as ensuring that the products are continuously managed in UK. One of the aims of maintaining the brand names is that customers love the brands and therefore any kind of alteration would shift their attention to other company products making the Cadbury Company to lose its clients. As realized earlier, the closure of the Somerdale factory would have an effect on the workforce of Cadbury at Somerdale who would even lose their jobs because of the action taken by Kraft. To curb this, Kraft stated that the pledges that had been put in place for the workforce of the Somerdale factory would be accomplished considering all the terms and conditions. As a way of escaping any further blame from the public, the senior management of the company decided that a retraining program should be put in place for the sake of the Somerdale workforce so that they are provided with new jobs.
For the purpose of strengthening and upholding its reputation, Cadbury sponsors significant scientific research, which has its base in Reading. The research team works entirely for Cadbury in which the specific work is to carry out an investigation, consultancy, merchandise improvement and training vocation for the food and drink, pharmaceutical, Medicare, and customer industries. The company has also an allergen management and testing, carrying out investigation on food contamination and training. It has also put in place an innovation team, which concentrates on the manufacture of chocolate within the industry. This capability of working out way to reassure the clients that all is well is aimed at dominating the market expanse both locally and internationally, to get rid of the unnecessary completion from other food producing companies. In addition to this, the company has put in place a number of strategies to ensure that its social responsibility is realized around the world. This has encompassed the transformation of dairy milk to be a fair-trade product. Another important area of the company’s charitable heritage is its hold for the Cadbury Foundation, which offers funds to schemes and partnering organizations especially in areas of education and employment. This serves as a driving force as to why Kraft took over the Cadbury Company (Buffett & Clark, 2010).
As noticed earlier, short-termism is one of the obstacles that are facing the company, as most of the investor that took over the company had no interest in the company’s long-term dreams. This worked against the takeover by Kraft. The basis of short-termism according to the research conducted embedded itself in the structure of share-ownership having the intermediating stakeholders like the fund managers who had shorter-term goals to be achieved as opposed to specific shareholders that they represented.
Methodology
The research employed both qualitative and quantitative research techniques to rule out chances of bias. In this regard, interviews were conducted by the research team with the major management individuals within the Cadbury Company. They offered first hand information especially in the area of responding to critical questions raised by the team as to why Kraft, even after announcing that it will ensure that the Somerdale factory remains open, decided to change and chose to close the factory. This was because of the concerns raised by the public on the after effects on particularly the Somerdale workforce that had risked losing their jobs following the closure action. On the other hand, questionnaires were sent out to different groups within the company to find out their personal view on action taken by Kraft. The data collected was a true reflection of the driving forces of Kraft towards the takeover of the Cadbury Company (Worthington & Britton, 2009)
. Secondary sources like the company’s brochures served well in provision of information on the company’s long term goals through its mission and vision statement. However, there were notable difficulties in the data collection process especially at the point where Kraft failed to surface and respond to some of the questions raised by the team, which could not be answered by any other second party. This also gave a reflection of the incentives that made Kraft to takeover the Cadbury Company, as the team mostly relied on speculations. However, the research methodology used offered sufficient information that could reflect that need to review the corporate governance strategies especially for companies within the United Kingdom.
Findings
After a spirited research carried out by the team, there were a number of flaws within the corporate governance the Company, which served the incentives making Kraft to takeover the company. One of the clearly shown problems lies in the possibility of the investor that took over the governance of the company having short-term goals and not taking into consideration the long-term goals of the company. They were only after making profit within a short period not considering the brand name of the company and its reputation on the universal market.
Affected individuals after the takeover by Kraft were the workforce of the Somerdale factory in Keynsham who had to lose their jobs following the action by Kraft to close the Somerdale factory and transfer its operations to Poland. The announcement made earlier by Kraft on keeping the factory open was to serve as a business strategy to gain favour for the bid of the Cadbury Company. There were as well a number of assumptions, which were involved in the taking of strategic steps. These actions could however not be adhered to since the operation of the factory in Somerdale could not go through. The environment only favoured the production of chocolate in Poland.
However, the research revealed that after the management team at Cadbury Company realized the effects that had resulted from the announcement made by Kraft; they rose very fast to save the reputation of the company both in the United Kingdom and with the Somerdale workforce. This entailed the explanation given by the Vice President of the company as to why the action was taken. The company furthermore assured the employees from the Somerdale factory that the pledges that had been made would be adhered to keeping in mind the terms and conditions. Such encompassed the compensation strategy so that satisfaction is realized within this workforce (Walters, 2010). On the other hand, retraining programs were put in place by the Cadbury Company to ensure that those affected by the closure of Somerdale factory could be trained to suite in the system of the newfound company in Poland and therefore be given jobs. This move served the company well because trust was gained again among the clients who could have shifted their attention to other food producing companies. The company as noticed also sought to maintain its brand names on the products since the brand had a stronger influence on the customer who had believed in it. This was an action to maintain the loyal customers as they still met the brand name during their purchase.
Recommendations
The occupation of Cadbury by Kraft has reflected some of the significant matters in reverence to the manner in which alien investors of UK Corporations are performed. This has led to the rise of spirited debated in both the urban areas and the government at large on takeover policies is enforced after implementation. There is therefore need for this debate to be continued so that a standing solution is established on the flaws facing the companies’ management in the United Kingdom. This has mainly revolved around the corporate governance of the organizations to get rid of problems being realized as in the case of Cadbury Company. More research is supposed to be carried out in this area following the weakness noticed during the research (Odih, 2010).
Most of the recommendations that have to be embraced concern the corporate governance that takes over companies in the United Kingdom. Considering the Cadbury case study, there is need of raising the voting threshold so that a change of ownership of up to three quarters is secured. In addition, there should also be that time limit given to the bidders to shut up in order for the war of phony takeover to be curbed more easily ensuring that the proper evidence is exposed about the bids. It requires that bidders script exhaustively how they are going to finance their bid not just within one day but also over a long period, which takes care of the long-term goals of the bidders. There is also need for the advisors to be transparent in the presentation of their motives and actions to be taken.
References:
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