Did Kraft mislead the market?

8 March 2010

Sarah Wilson

EU regulation

Kraft is under investigation by The Panel on Takeovers and Mergers (the Panel) over allegedly misleading statements the company made to investors and employees during its five month takeover battle for Cadbury.

According to reports in the Wall Street Journal, the Panel is looking into comments made by Kraft executives during the buyout regarding the future of a Cadbury factory near Bath, which is now set to close with the loss of hundreds of jobs.

In its initial approaches to Cadbury, Kraft officials had said that the Somerdale factory would be kept open, despite the UK firm's plans to move production to Poland. Shortly after the deal was completed Cadbury's new owners announced that the plant would shut by 2011 on the basis that it was was "unrealistic" to reverse Cadbury's plans to shut the Somerdale factory. It said that Cadbury had already spent £100 million on building new facilities in Poland and most production would be transferred by the middle of the year.

In February, Jacob Rees-Mogg (the Conservative candidate for the constituency where Somerdale is based) wrote to the Panel, arguing Kraft had broken rules that call for bidders to "prepare statements with the highest degree of care and accuracy" and not to make statements that "while not factually inaccurate may be misleading."

It's not just the Takeover Panel putting Kraft bosses under the spotlight; Cadbury's new owners have been called to appear before a House of Commons Select Committee that is holding a hearing on the takeover. "Kraft gave a number of undertakings before its takeover of Cadbury, we will be testing those undertakings," the committee's chairman, Peter Luff, said in a recent statement.

If the Panel does find that Kraft did violate the Code, the most likely outcome would be a public censure and continued bad PR as it has no powers to fine errant companies.

As recently reported, Lord Mandelson, Secretary of State for Business, Innovation & Skills has called for a wide-ranging review of U.K. takeover law to limit the influence of short term investors on takeovers. It's unlikely that this will be translated into any legislative change however as it will be up to the Takeover Panel, which is operated by industry professionals, to come up with market-based solutions.

Shareholders will be interested to note that Peter Kiernan, who was due to takeover as The Panel's new Director General from March 1st on a two year secondment comes from Lazard, lead adviser to Kraft on the Cadbury deal. Kiernan was one of the key Lazard bankers on the Kraft deal.

Links

The Business Innovation and Skills Committee >>

Takeover Panel Consultation >>




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