Protecting Companies From Bids Shelters Poor Management
Beware leaders trying to tamper with the way we vote. Cadbury's defeated chairman wants to disenfranchise the speculators who delivered the UK confectionery company into Kraft's hands.
Instead of control comprising one share more than 50 per cent of the company, Roger Carr proposes raising the hurdle to 60 per cent -- with anyone investing during the bid barred from voting at all. Carr explained his reforms in a lecture at Oxford's Said Business School and as a senior UK businessman -- his chairmanships include Centrica gas group and, in the past, Mitchells & Butlers, Thames Water besides Cadbury -- he deserves to be heard.
Investors do not actually vote on takeovers: they either accept of abstain, not vote for or against. And at Cadbury they accepted, not least because Carr advised them to, after correctly anticipating they would.
Carr may be sore at seeing Kraft Foods' bid succeed but Cadbury can blame only itself. The US company and its countrymen saw value that UK investors did not: before the bid, UK institutions owned just 28 per cent of the shares while American funds held 49 per cent. When Kraft's bid boosted the share price, long-term investors of both nationalities sold out to take long-term gains and short-term investors bought in seeking short-term profits.
By the time Kraft raised its terms, hedge-funds and other short-term investors owned 31 per cent of the stock. And as Carr's 60 per cent threshold did not thwart them, he would disenfranchise investors who had bought since the bid started anyway. He also suggests preferential tax treatment for long-term holders.
His recommendations might keep more British companies British but they would protect poor management as well as protect independence. The threat of takeover is a key way to make companies improve and a change of ownership is the ultimate way to change the board and its strategy.
Indeed, Carr's own career is based on mergers and acquisitions. He built the Williams Holdings conglomerate by acquiring brands such as Crown paints, Yale, Rawlplug and Chubb, and then divested them when conglomerates fell from favour. As Centrica chairman he last year fought a £1.3bn hostile bid for venture Petroleum.
And Cadbury has grown by takeover too, from Green & Black's organic chocolate or Schweppes drinks to the Fry's factory whose production it is now transferring to Poland: it bought Dr Pepper and Adams gum in America and demerged its beverages business out again.
Carr admits that those who live by the sword should be prepared to die by it. Cadbury enjoyed M&A when it won: its ousted chairman should not try to change the voting rules now it has lost.