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Cadbury’s Law - Should UK Firms be Protected from Takeover?

Thursday, February 02, 2012

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Back in 2010, the effect of the Kraft takeover of Cadbury’s brought business into the realms of politics as the unhappiness felt by some stakeholders spilled directly into the UK’s General Election.

One proposed response from the Labour Party was the so-called Cadbury’s Law, whereby new legislation would attempt to protect UK firms from takeover by foreign companies. Was this a good idea?

The UK has a very open takeover regime. In other words, there are very few barriers to investment in UK firms. When iconic British firms like Cadbury’s are taken over, it inevitably raises questions about whether the UK is likely to lose out in the long-term from the transfer of ownership to foreign investors. Certainly key stakeholders like the trade unions and local communities have been at the forefront of opposition to several takeovers in the recent past, citing concerns over lost jobs, reduced investment and closures.

However, many see this openness as a strength of the UK, making it more attractive to inward investment.

Another argument against protecting UK firms from takeover is that it prevents inefficient or poor-performing firms from being acquired.

What Cadbury’s Law was intended to protect/do

Provide legal protection for UK firms against hostile takeovers from foreign investors
Designed to specifically protect “infrastructure firms” (e.g. water, electricity, transport networks)
+ Companies where the Government deemed there was a “national interest”

How the protection would work:
At least 66% of shareholder would have to approve the takeover (and have to be long-term shareholders)
Restrictions on the amount of debt that could be used to finance takeovers

Why did this become such a hot issue?

Kraft were accused of many promises before taking over Cadbury’s and then going back on those promises once the takeover had been completed. The specific issue that received much publicity was the decision to close Cadbury’s factory at Somerdale

The Cadbury’s takeover was just one more in a long sequence of major takeovers of British firms by overseas corporates, including:

Land Rover - owned by Tata
Corus - now also owned by Tata
BAA - owned by Ferrovial

The Bloomberg video (from mid 2010) below highlights some of the key issues raised by the proposed Cadbury’s Law.

You can also see the issue raised here when British technology firm Autonomy was acquired by Hewlett-Packard in 2011.

Britain does not need foreign takeover protection, says Autonomy chief

This is a slightly longer video with more analysis of the background and reaction to the Kraft takeover of Cadbury’s. Some excellent material here, particularly for AQA BUSS4 students:

Categories: BUSS4 RESEARCH BUSS4 2012 - M&A BUSINESS THEMES Business Strategy TEACHING BUSINESS Video Case Studies
Tags: takeover, kraft foods, cadbury's, cadbury's law

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Cadbury’s Law - Should UK Firms be Protected from Takeover?

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