Leading article: Ignore the sweet talk to avoid a sticky ending

Cadbury's shareholders must focus on their long-term interests
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The Independent Online

What was initially touted as a sweet deal has turned rather bitter. Cadbury is fighting back vigorously against a hostile takeover bid mounted last month by the US food giant Kraft. Cadbury's management yesterday asserted that it will dramatically increase its revenues in the coming years and that Kraft's offer seriously undervalues the business.

The prospect of companies buying other companies does not usually excite the general public. But this bid has unleashed a strange kind of chocolate nationalism in Britain. Concerns have been growing that British confectionery will be somehow Americanised if this deal goes through; that Britons will find their Crunchies and Wispas replaced with unfamiliar and unpalatable US brands.

The unions have voiced concerns about the future of jobs at Cadbury's factories in the Midlands. And there is a general air of unease about the prospect of a British company with a long and distinguished philanthropic history falling into foreign hands.

Such fears are generally misplaced. Kraft would be idiotic to get rid of existing brands of chocolate that are popular in Britain. And Cadbury has moved a long way from its Quaker origins. It is now a hard-nosed multinational in its own right. Indeed, Cadbury's American chief executive, Todd Stitzer, cites its prospects in India and South America as a strong reason why it can go it alone. This partly (although not entirely) answers the concerns about jobs. It is not really the UK market that Kraft is interested in, but Cadbury's strong position in emerging markets.

In any case, what we are witnessing could well be a phoney war from Cadbury; an attempt by the management to force Kraft to increase its bid rather than a genuine drive to remain independent. There has also been talk of a possible merger with the smaller US chocolate manufacturer, Hershey (which already makes some Cadbury products in the US under licence).

Leaving aside emotive issues surrounding jobs and history, at the core of this affair is a stark choice faced by Cadbury's shareholders. Should they sell up and take their profit and newly minted Kraft shares, or stick with the present management in the hope of greater capital gains down the line? Long-term shareholders in the firm (and indeed those who already own equity in Kraft) need to think very carefully before deciding.

Kraft argues that a takeover would benefit both. But how often do these high-profile mergers generate the profits promised when they were put together? How often do vast conglomerates perform better than smaller, more focused, businesses? And how often do the promised money-saving "synergies" actually materialise? Such large takeovers are always good for bankers, lawyers and accountants. But shareholders often end up losing out over time.

In the run-up to last year's financial crash, the shareholders of many Western banks proved themselves woefully short-sighted, turning a blind eye while managements loaded up on risk and debt in the hunt for quick profits. Many actively encouraged such reckless behaviour.

We must hope that the shareholders of Cadbury have learned from such mistakes. For as many a chocoholic has discovered, though bingeing might feel good, in the end, it tends to result in indigestion.