ALREADY DESTROYING VALUE? THE CADBURY-KRAFT MERGER
This morning Cadbury, the UK multi-national confectionery manufacturer, and Kraft, the US based multi-national food conglomerate, announced they had agreed the much contested takeover bid for £11.5bn. I am a consumer and shareholder of Cadbury.
Food brands are all about trust, and chocolate even more so because it is an emotional category. Cadbury is an iconic British brand with a rich and socially aware history. In its early days Cadbury was a major employer of women and had a paternalistic attitude to its employees (in a good sense) investing in their welfare. Cadbury is one of the most trusted brands especially in the UK regularly coming in the top 10 of brand trust surveys. Even this morning on it's website the headline graphic was "values led, performance driven".
Is Cadbury's history of commercial success in a social context important or relevant anymore?
@urbanfly tweeted this morning "There's a romantic idea that Cadbury is a Birmingham company. They're a global corporation who buy out other companies".
Whilst Cadbury is a global corporation I believe that history is an important part of the embedded value of any company. Brands are created by people and their actions. And the mythology of a company is important as an implicit guide for those making decisions, providing a different perspective or a pause for thought.
Of course there is another side of Cadbury. They benefited hugely from the British Empire, but more recently have been a huge buyer of FairTrade commodities especially in West Africa.
A descendent of Cadbury's founder called the takeover "a horror story" according to the BBC. Felicity Loudon, George Cadbury's great-granddaughter said, "Every single iconic brand is going - we sell out everything." Of course this isn't important in of itself but I think it is the attitude that many will feel as we see this great British company consumed.
The takeover has been justified because the companies want to secure growth and save cost with now warm words between the parties saying how the best of Cadbury will be retained. But I doubt this will happen. I've worked on both sides of the fence being acquired and acquiring in my corporate career. Cultures rarely merge well. The company taking over inevitably dominates and imposes its values and decision making processes.
What all this means is a challenge to the very logic and price paid for the takeover by Kraft of Cadbury. Another reload of the Cadbury website this morning proclaimed "creating brands people love".
And here is the rub....of the £11.5bn paid a major part of this will be goodwill. A major part of this goodwill will be the intangible value of the Cadbury brands. From the reaction on Twitter and in the press the destruction of this goodwill has been palpable already. The provenance and corporate background of brands is increasingly important to people. In our transparent society information on the companies that make the brands "we love" is so much easier, we know their stories and a sense of where they come from. The fact that Cadbury has been promoting its use of FairTrade in advertising is all about proving they are true to being led by their values.
Given the arguments over the deal, the context of the UK economy and the shameful collapse in manufacturing in the UK's manufacturing base over the past 20 years this takeover will get a huge amount of coverage both now and in the future. The result for consumers will be the perception, even slight, that their bar of Dairy Milk is less satisfying than it was before. Even if the taste of the chocolate stays the same (a big topic on Twitter!), the "taste" of the brands will be tainted for ever.
There is no doubt that a great British company and brand died this morning.
What's your view? Do you think the takeover will destroy or create value? Comment now!
Thanks
Justin
Mail me: justin@basini.com
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