So we are reading this news that Kraft wants to buy Cadbury (NYSE: CBY). Frankly, we could make all sorts of analysis of why it’s not a good idea for Cadbury stockholders, but in capitalism, if Kraft has enough cash and they want the company bad enough, they could get it.
However, we are opposed to the sale, and we think England will lose out, big time, if Cadbury is sold. Since 1824, Cadbury has been English. It is a part of British identity and British culture, and Kraft won’t understand those nuances. While we don’t like governments meddling in company affairs, the British government would do well to meddle in this one in order to protect a critical British institution.
- Cadbury World: There are concerns larger than the company’s candy business. Cadbury World is an important stop for tourists, and we know Kraft knows nothing of running a theme museum and tourist attraction. They would be fools to close it to tourists, but things like that happen all the time. While Bournville history will still be there, what makes it all so compelling is the factory aspect. It’s a real Wonka factory, and it’s special.
- Factory closings: First, while Cadbury can ask for all sorts of staffing guarantees after the sale, there is every reason to assume that not only will British staff be fired, but the production could very easily be moved out of Britain gradually. It will go in drips, first this candy, then another. Those eight factories will turn to six, then five, then on down. Then a large bit will go, and pretty soon it will be a ghost. Kraft would argue this, but the reality of modern corporate life is that production is moved overseas when American companies get control.
- Layoffs: The corporate staff will go. Bye bye. One less British multinational company.
- Spin-off jobs: Advertising and marketing will also be less British. While Kraft would have to take a British approach to sell candy, more and more decisions would be made in the U.S., and that would mean lost jobs.
We love the letter Cadbury wrote. It was much nicer than we would be be:
We have created a pure play confectionery business with strong brands occupying leading market positions in both developed markets and high growth emerging economies – a business of considerable inherent value, impossible to replicate and with a unique position in the global confectionery market. We have a clear set of targets, a track record of delivery accepted by the market and value enhancing plans to further exploit our proven growth platforms.
We have demonstrated through our performance to date that we have the scale, capabilities and resource to deliver on our commitments to shareholders. Since the Adams acquisition, our confectionery business has delivered top line growth of over 6%, we have increased our global market share by over 100 bps and generated comparable margin growth of over 200 bps, all while materially increasing spend on marketing and science and technology to drive innovation.
We have been able to demonstrate both organic and inorganic growth. The acquisition of Adams, together with more recent acquisitions, including Intergum and Sansei, provided scale and new growth opportunities in attractive product areas of gum and candy together with exposure to emerging markets that complemented our powerful British Commonwealth heritage.
You’ve got to love companies with “British Commonwealth heritage” and if Cadbury is purchased by Kraft, they will not understand what that means. They also will not understand the company’s Quaker heritage, and the religious inspiration for the company.
Kraft is at some times a well run company, but they have not been faithful to many of the brands that they own, and are quite skillful at dumping them. They will most certainly try to extract every nickel out of Cadbury, and they have no allegiance to British corporate traditions. As an American, I want my Cadbury British.
Britain, please send them packing. Making chocolate with a well-known brand is like printing money, except that it goes on forever. That’s why Kraft wants it. And that’s why British investors should not sell it.
We can’t help but think of Charlie and the Chocolate Factory when we think of Cadbury World. Perhaps Cadbury might give Kraft the Augustus Gloop treatment, and send them down a chocolate river.