Following the shareholder approval of the Cadbury’s board recommended takeover offer by Kraft, the world’s second largest food company, there will inevitably be concerns amongst its staff that this will result in job losses.
It has already been announced that Cadbury’s head office in Uxbridge will close and there are union fears that this will not be the last of the closures. As the ownership and management of Cadbury travels across the Atlantic, with it possibly goes the company’s long-term interest in preserving jobs in the UK, as no assurances over the future of 4,500 UK jobs has been provided.
Given the level of debt that Kraft is taking on in order to buy Cadbury, there undoubtedly will be a need for efficiencies and reduced costs. It is understood Kraft is issuing debt in order to finance the takeover, principally as borrowing costs for companies rise. It comes as no surprise that Kraft has said it expects, "meaningful cost savings" as a result of the merger. This is likely to lead to restructuring and an efficient way of cutting costs is to move operations away from the UK and to areas where labour and service costs are cheaper. Indeed, this is not something new to Cadbury, who even whilst under UK control has moved a lot of its production abroad.
Unite, the trade union acting on behalf of Cadbury staff, has expressed that the takeover will not be in the best interests of Cadbury’s employees. They have cited Kraft’s previous takeover of Terry’s as an example of what could happen to Cadbury. This led to the closure of the Terry’s factory in York and all production was moved abroad.
There have been protests by Cadbury’s employees looking for government support to secure jobs and the government is seeking to take steps in this regard. Business secretary Lord Mandelson has met with the CEO of Kraft, Irene Rosenfield in order to obtain some reassurances that Cadbury’s confectionary brands would continue to be managed and operated globally out of the UK. That was not an assurance given, however the Kraft line was that there would be a net gain for the UK in relation to manufacturing output and employment. This is unlikely to provide Cadbury employees with a great deal of comfort in the short term and they are likely to remain sceptical about their long-term future.
Whilst the government can try to take steps to get reassurances from Kraft and publicly state that they will do everything they can in order to secure British jobs at Cadburys, if Kraft decide it is in their business interests to close down one of the UK sites, or scale the UK operations back drastically, there is little that the government can do about it. If the UK is considered by Kraft to be an uncompetitive place to do business and/or manufacture, then Kraft will naturally consider moving its operations, especially if it is looking to introduce the Cadbury brand to new territories. The government relinquished its ability to block this type of takeover and there are calls in some quarters for this to be addressed in order to preserve British jobs.
Cadbury is also a company which prides itself on the culture that exists within the business. It was built on a principle of social responsibility, which can appear quite at odds with the image of corporate America. It will be fascinating to observe how the cultures of these two enormous operations fit together and whether problems arise, especially given the level of union unrest currently being experienced in the UK.
Mergers often bring about employment disputes due to such a clash in cultures. Many employees become unhappy with the introduction of a new regime.
Dealing with the workforce
It will be challenging for Cadbury’s HR department to keep the workforce motivated during this unsettlingly time. Effective communication and meaningful staff engagement will be high on the agenda. Employees are likely to become litigious if they feel that changes are being brought in without prior warning or with legally compliant consultation. If there are to be material changes to working practices or employees’ terms and conditions, such as benefits and pension entitlements, it is imperative that there is proper consultation with employees and trade unions.
Kraft would be wise to take steps to address the obvious redundancy concerns that employees have about their futures. If there are plans to invest in the UK infrastructure that already exists, then announcing this positively to the workforce and any other positives arising from the change in ownership is a pre-requisite for trying to win over a sceptical workforce.
Chris Syder is head of employment and James Pike is a senior solicitor at Davies Arnold Cooper