Ex-Cadbury Chairman Sours on Takeovers
The ousted chairman of Cadbury, once a champion of takeovers, has started questioning the foundations on which he built his career.
A week after Kraft (KFT) won control of the confectionery company, Roger Carr suggested the rules need changing to protect businesses against hostile bids. "While capitalism is efficient, it may be unreasonable that a few individuals with weeks of share ownership can determine the lifetime destiny of many," he admits.
The former director of the Bank of England is proposing that bids succeed only if they are backed by holders of at least 60 per cent of shares—not the current simple majority. And he wants hedge funds and other speculators barred from voting shares bought during a bid.
It is a Damascene conversion for a businessman whose success was based on takeovers. He was in charge of acquisitions at the conglomerate Williams Holdings when it bought brands including Yale, Chubb, Polycell and Crown Paints. Later, as chief executive in the 1990s, he demerged them when conglomerates fell from favour. Mr. Carr has also chaired Thames Water, Mitchells & Butlers (MAB:LN) and Centrica (CNA:LN), where he launched a £1.3bn hostile bid for Venture Production last year.
"It would be hypocritical of me, therefore, to say the system has no merit," he concedes. "If you live by the sword it is not unreasonable you die by the sword."
Yet having lost a bruising takeover battle, he revealed his doubts to executives at Oxford's Said Business School last week. "Arising from the ashes of the takeover of Cadbury is a general concern that the playing field might not be level," he says. "In recent times, something has happened to the system that appears to tip the playing field towards short-termism."
Mr. Carr does not have a sentimental view of the company where he was a director for nine years and chairman for the past two. "The popular myth of Cadbury among the public was an old-fashioned family business run by chocolatiers with Quaker principles—a great British business with its roots in Bournville and its heritage in Victorian England," he says. "It was an Enid Blyton image that the media readily portrayed and which coloured much of the general public's reaction when the company was finally sold."
Reality was different. The company changed when the Cadbury family floated it and left the boardroom. It grew through its own takeovers—Schweppes and Green & Black's in Britain, Dr Pepper and the Adams gum business in America—and chewing gum is now more important that chocolate. Even during the Kraft bid, Mr. Carr considered deals with rivals Hershey (HSY) and Ferrero.
Kraft was criticised last week for closing the Somerdale plant and transfering chocolate-making abroad, but it was Mr. Carr who made the decision. "Some of the most recent and material investments had been made in Poland to replace UK production," he says. "In reality, Cadbury had become a global business whose shape and size owed more to acquisition, demergers and disposals in the past 10 years than the evolutionary development so the previous 150."
Far from being a national treasure, Cadbury was a company shunned by UK investors. Half the shares were US owned with UK funds holding only 28 per cent when Kraft bid. And when the share price jumped, long-term holders sold a quarter of the company to hedge funds seeking a quick gain, lifting their stake to 31 per cent.
Mr. Carr complains that once speculators buy so many shares, a bid's success becomes a self-fulfilling prophecy. He dropped his opposition to the deal when Kraft's chief executive, Irene Rosenfeld, raised her offer above £11bn because he knew these funds would accept. "At that moment, I and my board knew the battle for independence was lost," he says. "But the fate of the company was sealed long before the final act, determined more by the history of the share register.
"Individuals controlling shares which they had owned for only a few days or weeks determined the destiny of a company that had been built over almost 200 years."
Mr. Carr wants the Takeover Panel to rewrite its rules. He proposes greater disclosure to reveal stakebuilding earlier, plus tax breaks that favour long-term investors. Controversially, he says: "Raise the acceptance for takeovers above 50 per cent to dilute the risk of short-term holders overriding the wishes of a committed long-term shareholder base. A threshold adjustment to, say, 60 per cent of the total register could be contemplated, reducing the odds of deal-driven investors unduly influencing the outcome."
More radically, he suggests disenfranchising investors who buy during a bid. "Any share that changes hands in a formal offer period would carry no voting rights until the offer period is over," he says.
He admits, however, that the system in which Cadbury prospered led to the end of its independence.
from London, for Independent minds