As the battle for the financial spoils from a potential hostile takeover of UK-based Cadbury by Kraft Foods heats up, the IUF’s UK affiliate Unite has called on Kraft to lay its plans on the table, and to offer clear guarantees on jobs and pensions.
In a November 16 open letter to Kraft CEO Irene Rosenfeld, Unite food and drink secretary Jennie Formby expressed deep frustration that “Kraft’s repeated refusal to speak to us meaningfully about the issues that are most important to our members and the British public lead us to grow increasingly anxious about the company’s intentions.” The union is demanding explicit guarantees that jobs and terms will not suffer as a result of a takeover, including no site closures and no compulsory redundancies in the UK and Ireland for five years, no erosion of terms and conditions for five years, no increase in pension contributions for five years and a commitment that the company will fund any pension deficit.
On November 9, Kraft complied with the UK “put up or shut up” requirement and formally reiterated it’s previous offer to acquire Cadbury’s for a combination of cash and stock. The offer is in fact worth even less, due to the decline in Kraft’s share value since September. Cadbury management rejected the deal, which means that Kraft has now 3 weeks to get its offer to Cadbury shareholders, setting in motion the 60-day UK procedure, during which time Kraft would be expected to improve the offer.
Formally, the takeover process has turned “hostile”. In practice, a Kraft acquisition of Cadbury was always hostile with regard to workers in both companies.
Acquisitions inevitably have one beneficiary – the shareholders and the top management (through their stock options) of the acquired company. Workers at Kraft, and at a former Cadbury taken over by Kraft, would be the losers despite the leap in market share which enthuses the financial analysts. Kraft’s earnings are floundering and the company is loaded with debt equal to nearly half their market capitalization, the consequence of attempting to finance dividends and share buybacks by cost-cutting alone (i.e. slashing jobs) rather than building the company through productive investment. The 2007 acquisition of Danone’s biscuit operations piled on more debt, but didn’t stop Kraft from continuing to funnel the money to shareholders.
Kraft would have to take on still more debt to pay for Cadbury, but the investment banks, who stand to profit most from the deal, have rushed in to broker the acquisition and provide new credit to finance the increased debt. No less than 18 major banks have been mentioned in the financial press as lining up to provide a bridge loan and revolving credit to Kraft, including the Royal Bank of Scotland (RBS), in which the UK government has a major stake through its massive injection of bailout cash. “It hasn’t escaped our attention,” said Unite’s Formby, “that we have got a bank that is owned by the taxpayer partly funding this bid.” RBS is effectively planning to use public money to pocket fees and reap the benefits of bond sales to profit from job destruction in the UK
So while the banks eagerly anticipate fees and new bond issues, investors like Warren Buffet with big stakes in both Kraft and Cadbury are positioning themselves to profit from both ends no matter what happens at what price. Large scale purchases of Cadbury shares by hedge funds – the ultimate short term investors – like Paulson & Co (which recently announced a 2.08 Cadbury stake) and Eton Park (2.4%) have ratcheted up the price of Cadbury shares, thereby increasing the potential cost of a buyout for Kraft workers around the world. And the process raises the heat under Cadbury management to prove that they can resist the pressure by delivering even greater shareholder value alone then through Kraft. Finance, not the food market, is driving a process in which workers everywhere stand to lose.