James Moore: Kraft came hunting in the only country that would sell – Britain

Wednesday 20 January 2010 01:00

Kraft has been grappling with a problem. Its growth has been at best tepid and (as a result) the company's share price has done nothing very much. Like so many others, its executives have come up with a strikingly unoriginal solution to their problem. They've found another company with more potential and bought it. For much less than the long-term potential of said company (Cadbury) should make it worth.

Of course, Cadbury is a British company and Kraft knew that Britain is probably the only place in the world where they could get away with it so easily. Nearly every company in the FTSE 100 effectively has a "for sale" sign hanging above its headquarters. That's the way the City of London likes it.

Almost as soon as a bid is tabled, the debate in the Square Mile focuses not on whether it's any good, but on how much the target can wring out of its suitor and how long the marriage will take to consummate. City bookies fall over themselves to offer prices on both.

At the same time, a small army of lawyers, accountants, PR consultants and, yes, bankers all queue up to claim their piece of the pie. It's what has made the City such an astonishing success as a financial centre.

Even a rotten bid (and this is a rotten bid) tabled by a – well... let's not go there – will usually succeed. It takes a management with steel in its belly and very supportive shareholders to have any chance of resisting.

The London Stock Exchange managed it, after enduring a lengthy siege at the hands of the smaller, debt-ridden Nasdaq, but it was a close-run thing, despite the very real danger of Nasdaq importing a vast swathe of unfavourable US regulations that could have strangled much of what has made London so attractive as a financial centre.

Talk by the Government of making shareholders in Britain look to long-term value rather than selling off the family silver for a fast buck has proved to be just talk. To its credit, Neptune Asset Management has said it will vote against the bid. But, sadly, its one of the small fry, armed with a pea-shooter. Legal & General, which carries a rather bigger stick, has also spoken out against Kraft, although it has yet to say whether it will likewise vote against.

But even if it does, and even if it is joined by, say Standard Life (another opponent, but one which was back-pedalling furiously yesterday), the die is probably now cast. Around half of Cadbury's shares are held by Americans, primarily hedge funds which are solely interested in the short-term gains available from playing around in takeovers like this.

They love this sort of thing, which so rarely happens elsewhere. The LSE twice tried to buy Nasdaq but was told Johnny Foreigner wasn't allowed to own stock exchanges in the home of the free. The French went so far as to declare yogurt a strategic national asset when the predators came a-calling on Danone.

It's worth remembering this the next time that bankers (who will pocket enormous fees and bonuses from this deal) start threatening a mass exodus from the City of London because of Alistair Darling's one-off tax on this year's payments.

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