Page last updated at 17:00 GMT, Tuesday, 2 February 2010

Does it matter that Cadbury is no longer British?

By Simon Atkinson
Business reporter, BBC News

Cadbury's HQ in Birmingham

The sale of Cadbury to the US food giant Kraft has been confirmed - meaning another UK firm has fallen into foreign ownership.

But aside from the very un-British notion of Americans being in control of our Wispa bars and Crunchies, does it really matter?


How British is Cadbury anyway?

Cadbury was founded near Birmingham almost 200 years ago, based on Quaker ideals and with a renowned care for its workers.

But while it is easy to picture a small family company, its workers all living in one community (almost like the homes made of Dairy Milk chocolate which featured in Cadbury's sponsorship of that most British of television soap operas, Coronation Street), we are no longer talking about a quaint UK firm.

Cadbury is a huge conglomerate - selling products in 60 countries, many of them brands that few in the UK will have heard of.

It has expanded in part by buying up other brands and factories, and it has been involved in some big deals of its own (including the purchase of Schweppes and the building of a global drinks business which it later sold).

It's true that some people are concerned about the Cadbury sale because of nostalgia. They feel as if part of their childhood is being taken away
Professor David Bailey, Coventry Business School

And while those of us in Britain might worry about the possible disappearance of the Curly Wurly, bear in mind that emerging markets such as Mexico and Thailand account for about 40% of Cadbury's turnover. It has about 70% of India's chocolate market, and it is a market leader in Latin American chewing gum sales.

Also, as the BBC's Dave Harvey points out in his blog, "foreigners" have owned shares in Cadbury since it floated on the stock market in 1962.

About 40% of its shares are already in US hands. Currently, the top shareholder is Franklin Mutual Advisers - a company based in New Jersey.

And for almost seven years, it has been headed by an American; chief executive Todd Stitzer was a New York lawyer and Harvard university graduate.

So is concern about the sale just nostalgia-driven jingoism?

To some extent, perhaps. Generations of Brits have grown up with Cadbury products - accompanied by its distinct advertising - be it ornate posters for Fry's Peppermint Creams or the TV commercial featuring a gorilla playing a Phil Collins drum solo.

"It's true that some people are concerned about the Cadbury sale because of nostalgia," says Professor David Bailey of Coventry Business School. "They feel as if part of their childhood is being taken away. But it runs deeper than this."

Bar of Cadbury's Dairy Milk
Many believe the high price Kraft is paying for Cadbury means UK job losses are inevitable

Disquiet at the sale also seems to stem from what it represents - the loss of another UK manufacturer underlining the decline of British industry.

Cadbury joins the likes of Abbey National and airport operator BAA in a list of UK firms that have been sold to foreign suitors.

So perhaps the desire to preserve British brands is unashamedly emotional, rather than rational.

Prof Bailey certainly agrees that this has an impact.

"In the West Midlands, there's also been a sense of 'last man standing' about Cadbury's. It was the last independent manufacturing base and there's a tremendous sadness that it is gone."

Does it mean UK jobs will go?

Given Kraft is paying about £11.5bn for Cadbury, it will have to cut costs - especially because much of the deal is being funded by borrowed money. So it is no wonder that UK workers have protested against the sale.

Prof Bailey predicts that head office roles in the UK will be first to go as they get merged into other Kraft operations.

However, these make up only about 500 of the 5,500 Cadbury workers in the UK. The remainder are based in factories at Keynsham and Bournville, producing confectionery.

Cadbury was already planning to close the Keynsham-based plant, known as Somerdale, and move production to Poland.

And given that Kraft has pledged it will keep Somerdale open, the takeover could actually be seen as saving UK jobs, at least in the short term.

Previous takeovers of UK confectionery firms have led to job losses. After Switzerland's Nestle took over Rowntree's, production of Smarties was moved from York to Germany. And the Chocolate Orange is now made in Poland after Kraft bought its maker Terry's.

Cadbury products
Will consumers really give up their favourite treats in a backlash?

However, neither of these moves happened immediately, and we could see a similar trend with Cadbury, according to Prof Bailey. "Perhaps after three or four years, when it comes to them making global savings, then I wouldn't be surprised to see production outsourced to somewhere that has lower labour costs."

But given Cadbury had plans to move some manufacturing overseas, job losses would arguably be the result of the UK's higher labour costs and the economic benefits of moving elsewhere, rather than the "fault" of a US firm buying a British institution.

Will it be bad for the business?

Historically, many mergers of large corporations simply do not work.

Academic research suggests that about two-thirds of takeovers fail, in that the newly-enlarged company either makes no more profit, or even less, than the two separate entities.

And Prof Bailey says this is just as true when the buyer is a foreign rival.

So while some deals can work, especially where there is a long-term commitment (he cites India's Tata buying Jaguar Land Rover as a good example), others have been failures (BMW's takeover of Rover and the sale of HP to Heinz demonstrate this, he adds).

As for its impact on sales, there could be some consumer backlash in the UK (though how many are going to be prepared to give up their Creme Egg on a point of principle?)

However, UK sales make up a shrinking proportion of overall sales, currently about 20%.

And by being part of a larger company, Cadbury arguably has better access to new markets through Kraft's distribution channels, meaning sales could be increased.



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SEE ALSO
Unions appeal over Cadbury jobs
01 Feb 10 |  West Midlands
Cadbury debate: Bournville reacts
27 Jan 10 |  People and Places
Cadbury agrees to Kraft takeover
19 Jan 10 |  Business
Anger over Kraft bid for Cadbury
19 Jan 10 |  West Midlands
Cadbury rejects hostile Kraft bid
09 Nov 09 |  Business

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