Kraft Foods, the second largest food company in the world, managed to take over Cadbury, a strong player in the confectionery market, in January 2010. The key motivation for Kraft was to expand its global presence and to gain a foothold in emerging markets such as India, where Cadbury has a strong presence. The acquisition would also bring certain brand portfolio and cross-selling opportunities with it, as it brought many famous brands such as Kraft’s Oreo cookies and Cadbury’s chocolate bars under one roof. For Kraft, the idea was that the acquisition would expand its market reach and also increase the margin potential of the combined business. Kraft believed that the acquisition would provide meaningful revenue synergies, and, at the same time, yield pre-tax cost savings of at least $625 million annually to boost its growth targets. The bidding process started in August 2009. Before the final deal was announced, Kraft Foods had repeatedly approached Cadbury. Initial offers were rejected and Kraft was pressured to increase the offer value a number of times. The background to this drawn-out process was that Cadbury was a very profitable and successful company in its own right, with, for example, a market share of 70 per cent in the Indian chocolate market and 1.2 million retail outlets in that country. On the whole, Cadbury occupied a leadership position in 20 of the world’s top 50 emerging confectionery markets. In 2008, with a market share of 10.5 per cent, Cadbury was also effectively ranked as the number two worldwide in confectionery.

Cadbury and the Community

The Cadbury company has a long tradition of caring for the communities in which manufacturing facilities are set up and Cadbury products sold. A good example of this commitment is the development of the Bournville manufacturing site. In 1893 George Cadbury bought some land around Birmingham where he planned a model village which would ‘alleviate the evils of modern more cramped living conditions’. Cottages and houses were built for workers in the village. The houses had large gardens and modern interiors. The Cadbury brothers were particularly concerned about the health and fitness of their workforce, creating park and recreation areas, and stimulating their workers to take up sports or other leisurely exercise. Sports playing fields were developed, as well as several bowling greens, a fishing lake and indoor and outdoor swimming pools. Workers and their families could use these facilities free of charge. The Cadbury brothers cared deeply about their employees; they believed in the social rights of workers and, after his brother died, George opened a works committee for each gender which discussed proposals for improving the company. He also advanced other ideas, like an annuity, a deposit account and education facilities for every employee.

Throughout its expansion over the years, the company remained a family business. Members of the Cadbury family occupied management positions in the company and the vast majority of its stock belonged to family members or trusts. In line with its social and family values, Cadbury also maintained a strong commitment to local communities. The company has, for example, been credited with good community relations in India. Cadbury partnered with farmers in Kerala to cultivate cacao and has transparently reported on its efforts to reduce excess packaging, and to cut water and energy use. In addition, when the company was confronted with two crisis scenarios – the first around worms in Cadbury products and the second about an ill-judged ad about Kashmir – it directly responded by improving on the retailing and distribution set-up and by apologizing publicly. Regardless of whether the worms had entered the product at the manufacturing stage or within a retailing setting, Cadbury addressed the crisis head-on and consumers judged it to be an incident rather than a breach of trust and of the brand equity that Cadbury had built up.

Controversy around the Takeover

Within the months that Kraft was making bids for Cadbury, the senior management of Cadbury was seriously concerned about the takeover and what it would imply for the Cadbury business and workers. Cadbury repeatedly insisted that Kraft’s offers were far too low. Roger Carr, chairman of Cadbury, for example, urged shareholders not to sell themselves short: ‘Kraft is trying to buy Cadbury on the cheap to provide much needed growth to their unattractive low-growth conglomerate business model. Don’t let Kraft steal your company with its derisory offer.’ Politicians and union officials also weighed in, protesting against the takeover. The trade union Unite estimated that a takeover by Kraft would saddle the company with £22 billion worth of debt and could put some 30,000 jobs at risk, including around 7,000 jobs at Cadbury itself. Gordon Brown, the then prime minister, sought assurances from Kraft that ‘Cadbury workers – the 5,500 – can retain their jobs and make sure that new investment goes into a product that is distinctly British and is sold throughout the world’. Carr also criticized the role of shareholders in the takeover bidding, many of whom had secured some profits by selling Cadbury shares, a process known as ‘top-slicing’. These shares were snapped up by short-term investors such as hedge funds, which gambled that Kraft or another bidder would prevail. ‘At the end of the day, there were simply not enough shareholders prepared to take a long-term view of Cadbury and prepared to forgo short-term gain for longer-term prosperity’, Carr said. Felicity Loudon, George Cadbury’s great-granddaughter, said her ancestors would be ‘turning in their graves’, knowing that Cadbury had been sold to a company that ‘makes cheese to go on hamburgers’. Peter Cadbury, a great-grandson, said: ‘It is regrettable that a company which took 186 years to build up has had its future decided by investors whose aims are short term.’

Promises to Communities

In the bidding process, Kraft had assured the British government that UK jobs would be protected. However, on 9 February 2010, Kraft announced that it was planning to close the Somerdale factory, with a loss of 400 jobs. Kraft had initially promised to keep the factory open, but then decided that plans to move production to Poland were already too advanced to be realistically reversed. Employees from the factory felt betrayed and demoralized. The government’s business secretary Lord Mandelson had met with Kraft chief executive Irene Rosenfeld, who had given no hint of the closure. Mandelson expressed his frustration and said:

When I met the chief executive of Kraft last week, I made it clear that she had not given me any specific commitment or reassurance about any plant in Britain. What I do think, however, is that a week ago, she would have known what announcement was going to be made, barely six days later, and I think it would have been more honest, more straightforward and straight-dealing with the company and its workforce, and also with the Government, if she had told me what their intentions were.

Shadow business secretary Kenneth Clarke was similarly dismayed: ‘Kraft gave me reassurances last week that they expected to be able to keep the factory open, despite Cadbury’s announcement in 2007 that it would have to close.’ The local Cadbury management at the facility has since been partnering with regional development and job agencies to minimize the impact of the closure on the workforce and local economy. Kraft was initially reluctant to engage with any local communities of Cadbury, but has since gone on the PR offensive. Kraft was renamed as the Mondelēz International group in 2012 and has since been regularly meeting with community groups. Despite the promises that were made, 200 jobs were cut in 2015 and workers in Bournville continue to be apprehensive about their jobs and about job security at the site.

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