The beginning of the end came when the firm ran out of courage three or four years ago and decided it no longer had the stomach to fight Coca-Cola and PepsiCo in the global soda wars (a pity, as it was doing better than the City realised at the time).
The old Cadbury Schweppes finally broke itself up in 2008, selling off its Dr. Pepper/Seven Up drinks unit; as a symbol of its reduced significance, it relocated to Uxbridge Business Park in Middlesex. For some reason, the firm was never able to convince investors that it could deliver superior returns on its own in the ultra-competitive consumer goods market and it failed to push through a transformative deal. It should have bought Lindt or Ferrero or merged with Hershey, a deal it tried but failed to pull off, partly as a result of the crunch. Todd Stitzer, the firm’s chief executive since 2003, should have done better (he took over from Sunderland, who stepped down as chairman in 2008, to be replaced by Roger Carr).
The short-term gains for shareholders in the £11.7bn deal to be announced this morning are huge (and Carr, who conducted the negotiations, will be the toast of many a hedge fund); but had Cadbury been a better-run, more determined company it would be the one doing the buying today, not the selling up. Kraft is an average firm at best – and a sprawling conglomerate at worst.
We should also not forget that Cadbury is being sold at a much lower multiple than Mars paid for Wrigley, albeit in more favourable conditions. Cadbury’s demise is a shame for another reason: it engaged in the kind of value-added manufacturing Britain is meant to be good at, and it certainly excelled at crucial ancillary services such as marketing. It was run as an international meritocracy, with the best resources pooled from around the world, from France to Argentina. It is interesting that this wasn’t enough.
But none of this is a reason for the government to step in and prevent the deal. There is no room for nationalism in economics; in the long run, all the evidence shows that allowing firms to buy and sell themselves in a global market is what maximises growth, prosperity, jobs and living standards.
It is to be regretted that Lord Mandelson, the business secretary, has suddenly started to poke his nose in shareholders’ business, hinting strongly that he would rather the firm remained British. Such decisions must have nothing to do with him; that vast swathes of the banking sector have been nationalised is a tragedy and no reason to do the same in the confectionery business.
The good news is that while the government is spinning like mad in an election year, it won’t take any real protectionist action. A deal would be waved through. The ball is now in the shareholders’ court; unless Hershey miraculously turns up with a mega-offer, Kraft’s victory is all but certain.