ALREADY DESTROYING VALUE? THE CADBURY-KRAFT MERGER

 



This morning Cadbury, the UK multi-national confectionery manufacturer, and Kraft, the US based multi-national food conglomerate, announced they had agreed the much contested takeover bid for £11.5bn. I am a consumer and shareholder of Cadbury.

Food brands are all about trust, and chocolate even more so because it is an emotional category. Cadbury is an iconic British brand with a rich and socially aware history. In its early days Cadbury was a major employer of women and had a paternalistic attitude to its employees (in a good sense) investing in their welfare. Cadbury is one of the most trusted brands especially in the UK regularly coming in the top 10 of brand trust surveys. Even this morning on it's website the headline graphic was "values led, performance driven". 


Is Cadbury's history of commercial success in a social context important or relevant anymore? 


@urbanfly tweeted this morning "There's a romantic idea that Cadbury is a Birmingham company. They're a global corporation who buy out other companies". 


Whilst Cadbury is a global corporation I believe that history is an important part of the embedded value of any company. Brands are created by people and their actions. And the mythology of a company is important as an implicit guide for those making decisions, providing a different perspective or a pause for thought. 


Of course there is another side of Cadbury. They benefited hugely from the British Empire, but more recently have been a huge buyer of FairTrade commodities especially in West Africa.

A descendent of Cadbury's founder called the takeover "a horror story" according to the BBC. Felicity Loudon, George Cadbury's great-granddaughter said, "Every single iconic brand is going – we sell out everything." Of course this isn't important in of itself but I think it is the attitude that many will feel as we see this great British company consumed.

The takeover has been justified because the companies want to secure growth and save cost with now warm words between the parties saying how the best of Cadbury will be retained. But I doubt this will happen. I've worked on both sides of the fence being acquired and acquiring in my corporate career. Cultures rarely merge well. The company taking over inevitably dominates and imposes its values and decision making processes.

What all this means is a challenge to the very logic and price paid for the takeover by Kraft of Cadbury. Another reload of the Cadbury website this morning proclaimed "creating brands people love".

And here is the rub….of the £11.5bn paid a major part of this will be goodwill. A major part of this goodwill will be the intangible value of the Cadbury brands. From the reaction on Twitter and in the press the destruction of this goodwill has been palpable already. The provenance and corporate background of brands is increasingly important to people. In our transparent society information on the companies that make the brands "we love" is so much easier, we know their stories and a sense of where they come from. The fact that Cadbury has been promoting its use of FairTrade in advertising is all about proving they are true to being led by their values.

Given the arguments over the deal, the context of the UK economy and the shameful collapse in manufacturing in the UK's manufacturing base over the past 20 years this takeover will get a huge amount of coverage both now and in the future. The result for consumers will be the perception, even slight, that their bar of Dairy Milk is less satisfying than it was before. Even if the taste of the chocolate stays the same (a big topic on Twitter!), the "taste" of the brands will be tainted for ever.

There is no doubt that a great British company and brand died this morning.

What's your view? Do you think the takeover will destroy or create value? Comment now!

Thanks

Justin

Mail me: justin@basini.com
My website and blog: http://www.basini.com/
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Justin Basini

Entrepreneur, author of Why Should Anyone Buy From YOU?, blogger (www.basini.com), business, brand and marketing thinker and do-er, husband and dad

11 thoughts on “ALREADY DESTROYING VALUE? THE CADBURY-KRAFT MERGER”

  1. Brand value is essentially a concoction of emotional attachments towards a given company or product. I'm hugely saddened that the control of Cadbury (and with it Green & Blacks) has passed overseas. Yet I'm not convinced that our love of the brand makes it worth more. That, I believe, is already reflected in the share price. If the love were worth more we'd see it in sales. It's therefore my conclusion it is priced in.

    If anything, I see the premium Kraft have paid as being because Cadbury's have far better access to emerging world chocolate markets, particularly India. As India comes of age, it's going to have massive growth in consumption. It is there, not in the Midlands, that Cadbury's value for growth lies.

    When Green and Blacks became a part of Cadbury's no-one cared. We felt the brand maintained it's ethical status. With that core skill in maintaining customer perception firmly embedded within Cadbury's, I feel you are vastly over-reacting if you think there will be any visible (or taste!) change other than ownership for some time.

    Given that, I think the deal has given me excellent short term value (more than doubled my money in less than a year) now offers me an opportunity to bank gains whilst remaining in the game. Under Kraft, Cadbury have the opportunity to bring their chocolate brands to far more mouths than ever – how is that destroying value? I think the long term view is still strong and the short term rewarding. But ssssh – keep that Whispa to yourself!

  2. Minxymoggy thanks for your comments. They are thoughtful. I am a shareholder and have received the same financial value from the deal. From that perspective it releases value and your point about exposure to the emerging world is well made.

    However viewing "value" more in the round. I worry about other dimensions. Although not an "ethical" investor in the strict sense of the word I want my money to generate a return within the context of a balanced, more socially aware, model. I think this overall is the best way to generate a return whilst balancing risk and "doing the right thing".

    I worry that overall value will be destroyed in the long term because Kraft are a company that prizes the financial return over these more balanced considerations.

    Thanks for sharing your thoughts.

    Justin

  3. Given events of the last two years, focusing on more than short term financial gain is paramount to redeveloping position in the markets. While the deal has seen the Cadbury share price soar, analyst forecasts for the next two years had the company surpassing itself. I fear that as part of the Kraft conglomorate the facets that had made Cadbury a strong brand, in particular its internal culture, quality, global reach and ethical stance, will be sidelined as Rosenfeld et al desperately seek to recoup financial return given they rebuffed Buffett. I don't see this as adding long-term value to either shareholder or consumer. The real value may now be in decline, look at what happened to Terry's chocolate orange…

  4. Justin

    I couldn't agree more. I am gutted about this and I cannot really explain why. I know cadbury is a global brand with global workers and blah blah blah! But it is English! It's ours and like everything else that is English it is being given away! The taste will change – not because Kraft will be stupid enough to change it but because it will no longer be a British Company. We make so little in this country which makes us weak and reliant on everywhere else. And who exactly is Kraft borrowing the money from? What will happen to Cadbury if they cannot pay?

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