James Moore: Sweet lesson for banks in Cadbury
Outlook: It looks like the bankers in Cadbury's corner are set to make some healthy success fees
Tuesday 15 December 2009
For all the hand-wringing about the death of the City of London thanks to Alistair Darling's supertax on banks which pay bonuses, it's worth remembering that Britain's capital markets are still some of the most open, and liberal in the world. Just imagine the reaction in, say, France if Cadbury were based in Bordeaux rather than Birmingham when Kraft came a-calling.
Actually, the US group would probably not have bothered to pick up the telephone.
By contrast, on this side of the Channel there is a for sale sign hanging above the corporate headquarters of (nearly) every quoted company you might care to mention. It doesn't even matter if a deal is detrimental to the national interest – just look at Nasdaq's run at the London Stock Exchange, which threatened to do as much damage to the City of the London as the supertax had it won. As for having an iconic brand – that barely even enters the calculations and you don't even have to offer any concessions or sweeteners to assuage any hurt feelings – as British Airways did with Iberia.
The only way for UK-based managers to see off an unwanted takeover proposal is to prove to their shareholders that they can do a better job than the bidders can in generating value.
Fortunately for Cadbury's management, they almost certainly can. Kraft will need to raise its 720p a share offer significantly if it is to prove otherwise. Its target has a profitable business with some attractive growth opportunities in emerging markets, which ought not to be given away on the cheap for the benefit of Kraft's US shareholders. The institutions appear to be backing Cadbury for the moment, and they should continue to do so.
They have too often been willing to allow quality companies to go on the cheap, most recently in the case of Friends Provident which they packed off to Clive Cowdery's Guernsey-based takeover vehicle for a song. But even they can see that Cadbury's description of Kraft's offer as derisory is accurate. And it is by no means clear whether Kraft can get it to the sort of level at which Cadbury's shareholders would have to give its advances serious thought. An increase of five, even 10, per cent just won't do it.
As things stand, it looks like the bankers in Cadbury's corner are set to make some healthy success fees. Perhaps their managers should think about those fees as they contemplate the 50 per cent tax they will have to pay on this year's bonus pools.
Because were Cadbury's in Bordeaux, a quick word in the ear of the right minister or civil servant and there would have been no fees to put into a bonus pool to be taxed. And that might well be the case in Berne, or Bonn, or, come to think of it, Beijing as well.
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