For all Labour’s puff about an economy built on industry, the takeover shows the dominance of finance is unchecked
The Americans arrived with a fanfare and a barrowload of promises. There would be higher levels of investment. There would be no fire sale of assets. The future of an iconic British brand would be secure.
That was Manchester United. For the past few weeks, supporters of the Premier League champions have been moaning about the Yanks who now run Old Trafford – the Glazer family. The view from the stands is that the new owners loaded United up with debt and, far from investing in the future, are failing to provide manager Alex Ferguson with the money needed to rebuild the team.
Eighty miles down the M6 in Bournville, the workers at Cadbury are hearing the same sort of blandishments from Kraft after the £12bn hostile takeover was sealed yesterday. Investment will be guaranteed. Jobs will be safeguarded. The future of a brand that goes back to 1824 will be secured. The reality is that the takeover of Cadbury has been financed by £7bn of debt, making the confectioner ripe for a bit of what the management gurus call rationalisation but the rest of us call asset-stripping. Gordon Brown said yesterday: “We are determined that the levels of investment that take place in Cadbury in the United Kingdom are maintained and we are determined that, at a time when people are worried about their jobs, that jobs in Cadbury can be secure.”
But the prime minister has no way of making good on his pledge. From now on, decisions affecting Cadbury will be made in Illinois not Birmingham. Whatever guarantees the government thinks it can extract from Kraft are worthless. Peter Mandelson made it abundantly clear to Cadbury’s institutional shareholders that he did not want the Kraft bid to succeed. It made no difference once the price was right.
For the business secretary, the capitulation of the Cadbury board is a profound embarrassment. It was Mandelson who said that the lesson from the most savage recession since the second world war is that Britain needed less financial engineering, more real engineering. It was an excellent soundbite, because the slump brutally exposed the UK’s over-dependence on funny money and wheeler-dealing in the City. But that’s all it was: a soundbite.
This week it is the takeover of Cadbury by Kraft. Next week it will be a bonus bonanza in the City. Before too long there will be savage cuts in public spending to pay for a recession caused by the mistakes of the financiers. Nothing, in other words, has really changed.
It has taken two and a half years, but confidence has returned to the financial markets. Merger and acquisition activity collapsed when the financial markets seized up in the summer of 2007. Now the deal-makers are back. Never mind that the original Kraft bid was rightly dismissed as a derisory offer from a low-growth conglomerate. Never mind that for months the Cadbury board insisted that the company was in excellent shape and would gain nothing from being subsumed into Kraft. The hedge funds, which have been piling into Cadbury shares for the past few months, have made a killing. Less financial engineering? Don’t make me laugh. This was the return of business as usual with a vengeance. As Joe Lampel, professor of strategy at Cass Business School, noted yesterday: “It is clear that the big winners from the forthcoming Cadbury/Kraft merger are the hedge funds who had plenty of time to accumulate holdings in Cadbury, and can now realise substantial profits.”
Depressingly, the longer-term lesson from Cadbury is that the dominance of the City over the economy remains unchecked. Ministers might argue that the tax on City bonuses is evidence of a new get-tough approach, but a one-off levy is no substitute for the structural reforms that would be needed to make Britain less dependent on financial services. Although the great recession of 2008-09 had its origins in global finance, manufacturing was the sector most grievously affected by the downturn in activity. Britain’s manufacturing base has been further hollowed out by the slump in demand and has seen production drop back to levels last seen in the early 1990s. The West Midlands, which still has a higher proportion of manufacturing than any other region, has suffered the biggest increase in unemployment over the past two years.
When PepsiCo wanted to take over Danone, the French government said that yoghurt-making was a strategically important industry and saw off the approach. It is stretching a point to describe a company that makes chocolate bars and has only 5,600 UK staff out of a 40,000 global workforce as strategically important, but that’s not really the issue.
The French, along with the Germans, the Japanese and the Americans, do not subscribe to the view that ownership does not matter. Nor do they buy into the view that the discipline of the stock market can improve management and revive failing companies. If that were true, the last 25 years would have seen a renaissance of British manufacturing, a flowering of new world-beating industrial companies. So where is it?