Stephen Foley: The sale of Cadbury to Kraft was a sweet deal whatever MPs say
Outlook: The UK is best served by having an open economy, where even strategic industries can obtain foreign capital that UK investors may not be able to provide
Tuesday 24 May 2011
Don't you just want to grab the members of the Business, Innovation and Skills Committee by the hand, pull them to their feet and lead them in a joyful dance? Everybody sing along: "We don't have to take our clothes off to have a good time..."
The MPs clearly hadn't seen the latest television ad when they wrote yesterday that they "cannot help feeling that some of the soul of Cadbury has already been lost". What sourpusses. What nonsense.
Their report was an exercise in scraping around for unpleasant things to say about Kraft, which paid £11bn for the UK's beloved chocolate giant last year and in the process provoked MPs' worst populist and protectionist impulses. There was nothing that could or should have been done at the time to stop Cadbury coming under US ownership, and continuing to harry its new owners is only doing harm to the UK.
As the report concludes, on the substantive issue of whether Kraft is adhering to commitments it made to the committee last year – namely, not to close UK factories or make compulsory lay-offs and to invest more in new product research at Cadbury's historic home in Bournville – the company has been doing exactly what it promised. More, in fact, and the committee welcomed the additional investment.
Kraft did not need to make these promises to Parliament, though it certainly did need to assuage concerns of Cadbury employees if it wanted to make the acquisition a success. One year on, MPs have no business pontificating on the potential impact on the corporate culture of imposing a handful of marketing managers above the UK operation at Kraft's European headquarters in Zurich.
The Business, Innovation and Skills Committee got the headlines it wanted yesterday by elevating its silly power struggle over Irene Rosenfeld's refusal to appear at its hearing, and condemning the company for coming close to contempt of Parliament. Kraft feared, based on the experience of last year's hearing, that the committee was concerned only with getting a "star witness" towards whom ill-founded allegations and insults could be made. The MPs bristled at such a suggestion, but of course that is precisely what they wanted. Commons select committees are increasingly looking across the Atlantic to the corporate showtrials conducted by the US Congress and thinking they would like a piece of the action.
Kraft's purchase of Cadbury was a big, emotive deal. The company hurt itself tremendously by allowing unions to believe it would save the Somerdale plant, when it could not have known whether it would be possible, and then proceeding to shut the factory within weeks of taking over. It was rightly censured by the Takeover Panel.
But the point is that the UK is best served by having an open economy, where even strategic industries can obtain foreign capital that may not be forthcoming from UK investors. Few in Parliament believe otherwise. Precisely no one believes the chocolate industry should be a ward of the state, so the Business, Innovation and Skills Committee should stop acting as if it does.
Ryanair could have less room than it thinks
Ryanair doesn't publish results statements so much as angry "Letters to the editor". Almost every paragraph in yesterday's annual results railed against some impediment to the airline's increased profitability. Ireland should break up and privatise its airports (Paragraph 1); the European Union should rip up its system for compensating delayed passengers (Paragraph 2); airports should slash their fees now to reflect the pressure on airlines from high fuel costs (Paragraph 3).
It is tempting, therefore, to believe that Ryanair's plan to ground 80 aircraft – a quarter of its fleet – over the winter is a ploy to put pressure on airports and regional governments in Europe to reduce fees if they want any chance of keeping a trickle of winter tourists coming to boost the local economy.
It seems likely that, at this late stage, these planes really will be grounded. Ryanair has already bought the fuel it needs for the winter; re-establishing the mothballed routes would entail buying extra fuel last-minute, at what will inevitably be higher prices.
The exercise ought to concentrate the mind for next year, particularly since Ryanair is now entering a phase where it is harder to maintain the profit growth that chief executive Michael O'Leary has delivered since 1994. The expansion of its route network has slowed, it has run out of ideas for squeezing more cost out of the business, and – since standing-room only flights didn't win an enthusiastic response from safety regulators – there are no more frills that can be cut, either.
So here we are with Ryanair, the discount king, raising ticket prices.
Mr O'Leary pointed out yesterday that its cost per passenger is €26, compared to easyJet's €48, so there is room to raise prices before its tickets start to look uncompetitive. Except that passengers must feel they are getting a steep discount if they are to be persuaded to travel cattle class with Ryanair. The crunch point could come earlier than Mr O'Leary expects.
US election will give AOL vote of confidence
Historians will mark 2012 as the year that changed journalism (at least, those historians that love to mark the revolutionary moment). In discussion at the TechCrunch Disrupt conference yesterday, Arianna Huffington showed how her AOL Huffington Post network of websites is preparing for the US presidential election. It is creating 33 more low-cost local news websites under the Patch brand, in key primary states, and beefing up the national HuffPo site for political debate.
Even a presidential election is a patchwork of local races; no traditional media group can cover the waterfront as comprehensively as one built out of citizen journalism and local sites. The best thing about all this is that it will break the lock on political discussion by national journalists, with their obsessional focus on gaffes and poll numbers.
A secondary effect is that it will validate AOL's acquisition of the Huffington Post. Big time.
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