When the tough-talking Cadbury chief executive Todd Stitzer bade farewell to staff at the chocolate maker’s Uxbridge headquarters last year, he cried.
He was not alone. With its much-loved brands and philanthropic tradition, many mourned the end of 186 years of independence when the company was picked off by Kraft.
The extraordinary £11.6 billion battle for the confectioner unleashed a storm in Britain, prompting a personal intervention by Lord Mandelson, the Business Secretary at the time, and a rethink of Britain’s takeover regime. Even Irene Rosenfeld, Kraft’s icy chief executive, appeared to be taken aback by the fallout.
But as her No 2, Marc Firestone, prepares for another savaging by MPs tomorrow, has it been worth it? Before Cadbury fell, the two sides fought a bitter war of words. Mr Stitzer called Kraft a “lumbering corporate monolith” and the Cadbury chairman Roger Carr dismissed it as “a low-growth conglomerate”. The comments were intended to energise Cadbury’s shareholders, but they also resonated with Kraft’s.
Before the bid, Kraft’s share price had languished permanently below its 2001 flotation price of $31 a share and its revenue growth never exceeded the low single digits. When the American food giant captured Cadbury, analysts hoped that the integration of the British chocolate maker would turbo-charge growth across the group, wiping away years of underperformance.
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The early signs were not good. Last May, Warren Buffett, Kraft’s biggest shareholder, called the Cadbury takeover “dumb” and cut his holding in the American group by 23 per cent. But 13 months on from the takeover, Mr Firestone, Kraft’s executive vice-president and general counsel, insisted in an exclusive interview with The Times that it has been a success.
“There has been an impression externally in some reports that there’s been some kind of rush for the door [among Cadbury staff] and that that has created a vacuum of talent. That’s not right,” he said. “Kraft said at the time of the bid it believed this to be a transformational deal for both companies.”
On one simple measure, the takeover has worked for Kraft. The US food group’s shares finally broke the $31 barrier on September 14, although, at $31.70 at Friday’s close, it has hardly provided investors with a stellar return.
And there has also been some positive news on revenue growth. Kraft said last month that it was targeting 5 per cent growth this year, a figure that has disappointed analysts, but at least it is an improvement.
What is worrying is that the performance of the legacy Cadbury businesses — particularly in North America, Southern Europe and some emerging markets — has been poor, with revenue growth lagging behind even the businesses of “low-growth” Kraft.
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The suspicion is that the integration of Cadbury’s global business, which required many executives who wanted to keep their jobs to relocate from London to Zurich, is not going well. Mr Firestone blames the poor performance on a difficult trading environment last year rather than on cultural differences.
“Predominantly, the growth challenges are micro and macroeconomic conditions,” he said. “I do not believe slower growth is the result of a situation of tumultuous changes or cultural challenges.” He disputes the idea that the legacy Cadbury businesses have been hit by a brain drain, although Kraft has certainly lost dozens of top executives whom it tried to keep. Kraft said last July that 120 of Cadbury’s 160 senior executives had left, but declined to update The Times on further departures, preferring to say that one third of the group’s 400 top executives were from Cadbury.
Some loss was inevitable. A siege mentality inevitably developed at Cadbury in the five months that it held out against the hostile bid. When the board suddenly capitulated over one weekend, it was always going to be too much for some to swallow.
But some of Kraft’s most senior executives had assured the Cadbury board over that final weekend that they wanted the British company not only for its brands, but also for its entrepreneurial culture that they hoped would invigorate their own. Emboldened by this message, some Cadbury executives decided to stay on.
However, some who have gone say that the integration process has been badly handled. “It was very emotional for the people of Cadbury,” a former executive said. “Kraft tried to be sensitive in what they did, but that lasted about two weeks before they reverted to type.”
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He added: “I don’t think Kraft as an organisation has a great deal of emotional intelligence. They don’t think about people. It’s very product driven.”
In the 12 months leading up to Kraft’s hostile bid in August 2009, Mr Stitzer attempted a number of other deals that would have protected Cadbury.
He approached Kraft with an offer for its confectionery business and, when that was rebuffed, he looked for a white knight to defend Cadbury against what was viewed as an inevitable counter-bid from the American company.
The Cadbury boss then spoke to both the US chocolate giant Hershey, a company whose culture is much closer to Cadbury’s, and the Italian chocolate maker Ferrero about a defensive tie-up.
The legal restrictions of Hershey’s trust ultimately prevented it from bidding, and the Ferrero founder Michele Ferrero was pushed by his sons to bid, but he could not stomach the idea of the redundancies he believed were required to make a tie-up work.
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Other former Cadbury executives say that if they had only 12 months more to turn Cadbury around, they would have got the chocolatier’s share price above what Ms Rosenfeld could afford.
This is a crunch year for Kraft. The American business expects to extract more than $500 million (£311 million) of synergies from the takeover and unions fear there will be job cuts in Britain as Kraft tries to convince investors that it has done the right thing.
Mr Firestone, who will stick by Kraft’s promise not cut manufacturing jobs until next March, is non-committal about other roles.
“In some areas there could to be cuts, in others, there could be increases,” he said.
Thirteen months on, Kraft is still struggling to escape the public relations legacy of its hostile bid. A dust-up with the unions over job cuts will see him heading straight back to Westminster for yet another savaging.