Do we need a 'Cadbury Law' to protect British companies?

James Moore examines the pros and cons of changing takeover rules in the UK

Proponents have taken to calling it the "Cadbury Law" – the creation of a new takeover framework that would make it more difficult for an opportunistic predator like Kraft to gobble up a perfectly viable and profitable business such as Cadbury's by exploiting Britain's takeover rules. The first major survey of corporate Britain on whether the rules should be changed, however, reveals that businesses are sharply divided. DC Advisory Partners, a boutique investment bank, quizzed senior executives at 100 UK companies with a combined annual turnover of more than £290bn. Half of them wanted a Cadbury Law, and half did not want any change.

The timing of the survey is particularly apposite – for a start, the Takeover Panel is conducting a consultation on the current rules, with another review promised by the coalition Government (Business Secretary Vince Cable has spoken in favour of a Cadbury Law).

There's another equally pressing reason, though: the weak pound. Emerson Electric might have been rebuffed in its attempts to take over Britain's Chloride Group after the latter found a white knight in the form of Swiss electrical engineering company ABB (although this one's not over yet). But analysts are predicting another string of takeover bids as corporate America takes advantage of sterling's weakness to sweep up a bevy of British companies on the cheap. Some 72 per cent of the executives surveyed by DC expect there to be an increase in the number of UK firms acquired by foreign-owned companies unless the takeover rules are changed.

The fall of Cadbury is still hugely controversial and has led to accusations that Britain's takeover code is weighted too heavily in favour of the bidder. Critics argue that Kraft, a hostile bidder, was able to string the process out long enough so that Cadbury's shareholder register became filled with short-term investors, such as hedge funds, who would be willing to accept any bid to make a quick buck with no regard to the business's long-term prospects or value.

But DC argues that the long-termers didn't have to sell to them, and it said: "Any changes that reduce Britain's international competitiveness and damage Britain's standing as a place to do business to international investors and companies has got to be a bad thing, and will be harmful to both the UK economy and the exchequer in the long run."

DC also points out that while Cadbury's the brand was British, the company was actually a multinational that was headquartered in Britain with, pre-bid, 53 per cent of the shares held by US institutions, against 37 per cent held by Britons. The chief executive was American and revenues were split 25 per cent UK against 28 per cent US.

Of course, investment banks like deals because they generate fees. TUC general secretary Brendan Barber says: "Any review of current regulations must lead to a change where bids can only go ahead subject to an assessment of the long-term impact of any takeover on the company. At the moment, shareholders make the decision based on the share price alone, with scant concern as to the effect the acquisition of the company will have on jobs or the surrounding community."

As for the investor groups, they are more wary of some of the radical changes that have been suggested. Michael McKersie, the assistant director of investment affairs at the Association of British Insurers (ABI), says: "It's absolutely right that the Takeover Panel should consult on whether we have the right system and whether the rules are balanced. But we are quite clear that 50 per cent is the right threshold for securing control of a company. If you've achieved 50 per cent plus one, then you have won. We are also concerned about the dangers of creating two classes of shareholder, one of which can vote and the other that can't."

Business groups are keener on reform. John Cridland, the deputy director-general of the CBI, said: "The Cadbury takeover highlighted that the shareholder base of many British companies has shifted markedly in the last decade to one of international share ownership. The most important priority is to strengthen the incentive for long-term equity ownership in the London market. In the area of takeover rules, where lots of ideas have been floated, the CBI would be very cautious about radical changes because of the unintended consequences they could have. But one idea worthy of scrutiny is that to vote, shareholders should have acquired their shares before the onset of a bid situation."

Mr Cridland's plea for measures to encourage more long-term UK shareholders – the power of British institutions has been falling markedly – is where he would find common cause with the ABI. Without them, a Cadbury law might prove fruitless.

The most controversial takeovers


For critics, this deal is the poster child for everything wrong with the way mergers and acquisitions are conducted in the UK. Kraft, whose shares had been flatlining in the US, laid siege to Cadbury for months before launching a hostile bid that resulted in an £11.5bn takeover. They outraged almost everyone (even censured by the Takeover Panel) after they went back on their promise to keep open the Somerdale plant, near Bristol.


The Spanish company's debt-fuelled £10.3bn takeover would not have been allowed had the nationalities been reversed. The performance of the airports in the months following it hardly helped the public's mistrust of Britain's "open-doors" policy.


The French and Germans came in and took over much of Britain's energy infrastructure. Price rises swiftly followed.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral