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Home > Blogs > Anthony Harrington > Cadbury—The chairman’s dilemma

Cadbury—The chairman’s dilemma

Finance Blogger: Anthony Harrington Anthony Harrington

It is unfortunate, but often unavoidable, that chairmen and CEOs of household name public companies who are put under the spotlight of a contested takeover tend to end up looking to Joe Public like unprincipled hypocrites. Nor is this a minor matter, for it does no good to the business community to have its star figures coming out of these episodes looking a bit like politicians who are past their sell-by date, tatty, chewed to destruction, and with near zero credibility, at least in the eyes of the general public.

Those who understand these matters, of course, can appreciate how skillfully or otherwise the individual(s) involved have played their hand, but that cuts no ice with the public who have been schooled by the press to believe that “u-turns” are a sign of weakness, signaling a complete lack of bottle. If you say nay on day one, and yea on day three, you’re history … ask Gordon Brown. (Yes, we’ll have an election, ah, no we won’t, and by the way, I never said we would … Whoops, what happened to my popularity rating?)

In reality, of course, the man or woman at the helm of a company targeted by an unwanted suitor has no option, if they are going to do the best by their shareholders, other than to resist and resist, insisting all along that the bid on offer is ludicrously low and undervalues the company. Then the bid is sweetened a touch and suddenly, presto, the acquisition is hailed by the defending chairman as a merger made in heaven, to be heartily recommended to shareholders.

The flip-flop, when it finally comes, is usually made more extraordinary by the fact that a certain amount of mud will usually have been tipped over the aggressor by the defender as part of the defense. They often, for example, seek to strengthen their case by pointing out how little the predator company really understands their (the target company’s) business and what a mess the would-be acquirer would be bound to make of things if by some misfortune they actually got their hands on it.

At the same time they emphasize how wonderfully well their business is doing and has done on its own and how little it needs the acquirer.

It must be said too that the history of mega-mergers is very much on the side of the defending chairman when he/she makes these points. Mega-mergers are extremely hard to push through to the point where they really do deliver the anticipated value to shareholders. RBS and ABN AMRO, an acquisition too far if ever there was one, makes the point in spades.

Cadbury went through a fair number of these gyrations in its four-month-long defense against Kraft and in a future blog I’ll be looking at how the merger might play out over time. One point here is that chocolate, it seems, is a culturally specific thing. UK chocolate is not US chocolate and neither are remotely like Swiss chocolate, which makes cross-marketing across regions just a tad tricky…

On the face of it, Cadbury chairman Roger Carr did pretty well, from the shareholder’s point of view, forcing Kraft to up its earlier offer of $17.1 billion, which valued Cadbury at around 770p, to 840p, or $19.5 billion. That is enough of a difference for Carr to look the press in the eye without flinching too noticeably when he pronounced the winning bid “good value for Cadbury shareholders.”

Nevertheless, his various interviews with the 24 hour media news folk at Sky News and the BBC will not figure among his happiest hours, and since they all pressed hard on the theme of the flip-flop, our point about the unfortunate appearance of hypocrisy stands. Carr is, of course, not a hypocrite and his defense was spirited, but he is not the ultimate owner of the company, merely the servant of the shareholders, and once the tipping point has been reached he has to flip. That’s the name of the game.

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Tags: Cadbury , Mergers and Acquisitions , stocks and shares , valuations
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