Thursday, January 21, 2010

Cadbury and Kraft's occupying army

We just blogged about the often value-destroying nature of mergers and acquisitions, related to the Kraft and Cadbury deal - but we had missed this story by Will Hutton and Philip Blond in the FT. Supporting our case, the story notes that:

"Recent academic work shows mega-mergers, which make up 43 per cent of all money spent on acquisitions, destroy value. In the US between 1980 and 2007 mega-mergers lost, in aggregate, $413.5bn. When a hostile bid was involved, overpayment led to a 14.9 per cent loss of value."

And on the Kraft-Cadbury, deal, the authors note that:

"After such acrimony Kraft will enter Cadbury like an occupying army intent on doing what it must to deleverage fast – the clash of values, people and strategy that is so destructive after hostile bids. The interest on the debt used to buy Cadbury will be set against profits in the UK or in whatever jurisdiction or manner Kraft decides to declare its new profit stream for tax efficiency. Another part of our tax base has disappeared, and the UK taxpayer will have partly paid for the privilege."

Great minds obviously think alike. Why so many other great minds haven't cottoned on to this is, like so much else about the offshore system, a mystery to us. Perhaps we ought to post all this kind of stuff onto this page (go on, take a look, and note the web address). They add:

"the deal is bad for Cadbury, competition, consumers, the tax base and future entrepreneurs. There are just two winners: bank advisers now £250m richer and Ms Rosenfeld – at least until the bid goes wrong."

What to do? Among other things:

"It is time for a wholesale review of corporate governance, shareholder responsibilities during takeovers, tax treatment of debt interest, the incentive structures in asset management and competition rules."

Yes! Wake-up is happening!


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