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House of Commons Hansard
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26 January 2010
Volume 504

Motion made, and Question proposed, That this House do now adjourn.—(Steve McCabe.)

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A week today, we will know whether Cadbury shareholders have succumbed to the offer from Kraft, worth 850p a share. There is still time for investors to look to the long-term value of the company, which is currently in good health, with no debts. In contrast, Kraft’s debts will have gone from $10 billion in 2006 to $30 billion if it succeeds in taking over Cadbury. However, the signs that Cadbury will remain in British hands are not optimistic, given that more than a quarter of shareholders are now hedge funds, those Johnny-come-latelies who bought into the company only to make a fast buck.

Since coming to power in 1997, new Labour has fully embraced the Anglo-Saxon model of unfettered market capitalism, such that, as Lord Myners has acknowledged, it is easier to take over a company here than anywhere else in the world. So when the Business Secretary made his exhortation before Christmas, saying that Kraft would face huge opposition from the Government if it tried to make a quick buck out of Cadbury, he could not deliver on that commitment. I therefore want to use the opportunity of this debate to explore what lessons can be learned from the Cadbury debacle, to try to ensure that other British companies do not similarly fall prey to hostile takeovers that are in the interests of neither the company nor UK plc.

That is not to say that I want to argue that all takeovers are bad or that I want to return to devil-take-the-hindmost protectionism. Britain has greatly benefited from overseas investment by companies such as Toyota and Honda. I do not want to discourage such long-term investment, which has brought improved technological and management capabilities. My concern is for those British-owned companies that are well run and have good prospects for retaining high-value-added functions in the UK, creating jobs in research and innovation and jobs requiring high skills. The Government cannot pick winners, but they should create a framework in which such companies can prosper but not be so easily subject to predatory activity. We have learned over the credit crunch of the importance of the relationship between the enabling state and successful business. I hope that we have learned that Keynesian economics should not have been so casually abandoned.

People in Birmingham and the west midlands have been hard hit by the recession—the consequence of an over-reliance on financial services and the downgrading of the importance given to manufacturing. Even though Rover, LDV and HP Foods were struggling companies, their demise hit us hard. However, when we woke up last Tuesday morning and heard that the board of Cadbury was going to recommend that shareholders accept the Kraft offer, we were shocked and angry. Was it not only seven days previously that Cadbury had issued a revised document to shareholders urging them to reject a bid representing only 12 times historical earnings? Why was the last-minute higher offer, at just under 13 times historical earnings—still a derisory multiple compared with takeovers of comparable well-branded food businesses—suddenly deemed acceptable? Surely all the arguments about the importance of keeping Cadbury independent as a successful and profitable British company were as valid then as they were only a week earlier.

The answer to the abandonment of all logic beyond that of the casino must surely lie in the activities of hedge funds and other investors who are interested in buying shares with the sole aim of profiteering from a takeover battle. They do not care about the long-term health of the company, and, in the case of Cadbury, they are quite happy to see the successor company saddled with a further £7 billion of debt, so long as they get their payout. So it is not Kraft that has made a quick buck, but fly-by-night investors. It is deeply disappointing that the Cadbury board capitulated to the pressure from those hedge funds and other shareholders, who were making it known that they would be prepared to accept a higher bid from Kraft—in some cases a bid as low as 830p a share.

That is the reality of the light-touch regulation of market capitalism that we experience today. The good will towards Cadbury from its employees and the wider population, as well as from small investors and some corporate shareholders, is apparently worthless against such an onslaught. The Cadbury board owes a fiduciary duty only to its shareholders. That cannot be right. Narrowly defined share value is not a measure of real worth. Employees’ commitment feeds into the bottom line.

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Does my hon. Friend share my outrage that the hon. Member for Leominster (Bill Wiggin) saw fit, when describing the Cadbury work force, to say:

“who wants to hire a whingeing workforce when you could hire a really positive upbeat one?”

Surely we need to talk up the work force in order to support Cadbury in Birmingham.

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That is exactly right. My hon. Friend makes my point for me.

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Will the hon. Lady give way?

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We have an excellent work force at Cadbury who have committed themselves to working hard—

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On a point of order, Mr. Deputy Speaker. I believe that, perhaps inadvertently, the hon. Member for Birmingham, Edgbaston (Ms Stuart) seeks to misrepresent my true feelings about this particular debate. What I actually said was:

“I have seen the trade unions talking down this company and I worry that by sending out such negative signals it puts people’s jobs more at risk because who wants to hire a whingeing workforce when you could hire a really positive upbeat one?”

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Order. I think that personalities are best kept out of this. This is a serious subject about which many thousands of people will be concerned. That is the subject matter of this debate, as represented by the presence of hon. Members this evening. I have allowed the hon. Gentleman some latitude, because the hon. Member for Birmingham, Edgbaston (Ms Stuart) mentioned his name, but this is not a point of order. He is seeking to continue the debate. Maybe, at some point, the hon. Member for Birmingham, Selly Oak (Lynne Jones) will allow a further intervention, but that is up to her.

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I think that the hon. Gentleman’s words condemn him themselves, in terms of his attitude towards the work force and the trade unions—

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Further to that point of order, Mr. Deputy Speaker. Is it in order that those hon. Members, both of whom have spoken in the debate, and both of whom have received money to their constituency Labour parties—

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Order—

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rose—

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Order. I have ruled that the hon. Gentleman’s original intervention was not a point of order, and his second one certainly is not. I have also—

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rose—

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Order. I have also appealed for this debate to be taken seriously. This is a matter of considerable national interest as well as being a matter of interest in the Birmingham and west midlands area, and it should be dealt with on that basis. I hope that there will be no more personality references, because they are not serving the interests of Cadbury employees at all.

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Thank you, Mr. Deputy Speaker.

It is quite clear from the number of Members attending this debate that there is considerable interest in it. In December, a delegation of Birmingham MPs, including my hon. Friends the Members for Birmingham, Northfield (Richard Burden) and for Birmingham, Hall Green (Steve McCabe), and representatives of Unite, who were fighting on behalf of the company, met Lord Mandelson to urge the Government to support the campaign to keep Cadbury a British company. We were grateful to him for using the power of words, but nothing concrete came out of the meeting except a surprising admission from the Secretary of State that new laws might be needed to ensure good stewardship of companies. The latest twist in the Cadbury affair demonstrates that this is indeed the case, and the Government must now urgently examine what regulations could be introduced to ensure that the interests of all stakeholders are considered.

I am not an expert in this area, but I expect the Government to look to those with such expertise to put on their thinking caps. I understand that there are proposals coming from the EU for the stronger regulation of hedge funds. Other measures that have been suggested include the barring of short-term shareholders from voting in takeover battles, and capping the amount of debt that can be taken on.

In an interview with the Financial Times last November, Lord Mandelson said that if he could turn the clock back, he would like to see more large UK-owned manufacturers because of their role in creating wealth. Looking forward, what action are the Government prepared to take to ensure that we do not have even fewer UK-owned companies?

Before I move on to the future for Cadbury if the Kraft takeover goes ahead, I must mention the role of majority-state-owned Royal Bank of Scotland in helping to finance the Kraft bid. That is a cause of great consternation among taxpayers, who see the bank as using their money to put British workers on the dole, as well as stabbing Cadbury, one of their corporate customers, in the back. The argument that if it withdrew another institution would step up in its place does not wash with my constituents. It is the argument used to justify other dubious activities, such as selling arms or trading with repressive regimes. Surely such investment would be better going into good British businesses.

Whatever the outcome, as the Member of Parliament representing Bournville my focus must now be on securing the future of the operation there, and joining other colleagues to protect jobs in other plants.

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My hon. Friend makes an excellent case. No doubt she will refer to some of the assurances that Kraft has offered. May I put it to her that we need more from Kraft than bland assurances? We need to know the specifics, and quickly, of its intentions, including for the high-level research and development jobs and for other things at Bournville. Acting on such words will be important for the future of Bournville and other plants.

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I entirely agree with my hon. Friend, and I will mention such assurances later.

As a result of the huge additional debt foisted on the business, as well as of the millions paid to bankers and accountants, Kraft is looking to make more than $675 million-worth of savings. I accept that some of that will come from so-called “synergies” within the business, but it will inevitably lead to corporate job losses. The question that my hon. Friend has raised is whether manufacturing jobs and jobs in research and development and innovation will be retained and will grow. Will Kraft retain the commitment to fair trade under Cadbury?

Kraft has told me that it has great respect for Cadbury plc and its employees. It says that it is eager to build on Cadbury’s iconic brands and strong British heritage and innovation. In response to criticisms of its closure of Terry’s in York, it has emphasised that national brands such as Milka in Germany, Marabou in Sweden and Toblerone in Switzerland are still made in their biggest domestic markets. That may be the case. From comments made by the Prime Minister, it seems that similar assurances have been given to the Government. It is too early to take comfort from those assurances. Kraft says that it would “love to figure out” how to keep open the Keynsham plant that Cadbury would close. However, given that that was an early commitment in meetings with trade unions, I had hoped that it might be more definite about that by now. Nevertheless, there has been heavy investment in Bournville and other plants, and there can be no good reason for Kraft to run down such efficient operations.

May I finish by asking the Minister exactly what the Prime Minister meant when he said that the Government would do everything they can to make sure that jobs and investment are maintained in Britain? How will that commitment be delivered?

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I am grateful to my hon. Friend the Member for Birmingham, Selly Oak (Lynne Jones) for introducing the debate. I understand her concerns about the proposed takeover of Cadbury by Kraft, which she has set out eloquently this evening. I understand the concerns across the Chamber, evidenced by the attendance at the debate this evening, and the national concerns about the matter.

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Obviously, what is happening regarding Cadbury concerns Birmingham, and rightly so, but will the Minister accept that there is deep concern and anxiety in the black country and Coventry, too?

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Indeed. I was going on to say that Cadbury employs 5,700 people at eight manufacturing locations across Britain and Ireland. It has plants in Bourneville in Birmingham, the Marlbrook centre at Leominster in Herefordshire and the Somerdale plant in Keynsham just outside Bristol, represented by the Under-Secretary of State for Environment, Food and Rural Affairs, my hon. Friend the Member for Wansdyke (Dan Norris).

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Does the Minister recognise the importance of the fight of the workers in Keynsham, backed by their local MP, to preserve their jobs, which were under threat in advance of the takeover bid?

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Indeed. We should reflect on that and recognise that there were concerns about jobs before the proposal and, of course, there are concerns now. There is also a Cadbury factory just outside Wrexham in Chirk, very close to my constituency. This is an issue that concerns not just the midlands but elsewhere across the country. More than that, we all know that Cadbury is not just a British brand but a British institution.

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Cadbury is an institution in this country. We have people in Coventry who work for Cadbury. More importantly, is there not a case for having another look at corporation law regarding this matter?

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I will go on to discuss such matters if I can make some progress.

Cadbury is a multimillion pound company and its annual revenue growth has been 6.3 per cent. per year. We know of course that the company has a long and distinguished history. It has enormous civic achievements that have transformed lives and communities, and we recognise that the Cadbury family were social as well as chocolate pioneers. George Cadbury’s decision to buy the 120 acres of land close to his works in Birmingham led to the creation of the model village with its own social security programme. George was always very explicit about his purpose there—to “ameliorate the condition of the working class and labouring population by the provision of improved dwellings with gardens and open space to be enjoyed therewith.”

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As someone who has lived in Bourneville for the past 35 years—within inhaling distance of the chocolate factory—may I say that this is not any old company? As the Minister says, this is a company with a sense of belief and commitment to its own community. It is a model company. The sense of anger and betrayal in the area about what has happened cannot be underestimated and we want a response that is appropriate to that.

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I well understand and appreciate the level of concern that this proposal is causing to local MPs and others across the country.

I want to turn to the takeover itself. It is important to set out the facts relating to it. The Cadbury board has now recommended acceptance of the final takeover from Kraft Foods, which values Cadbury at £11.9 billion. That takeover would create the world’s largest confectioner. Kraft must secure more than 50 per cent. of shareholder votes by 2 February for its bid to succeed. That is where we are.

As I have said, we are acutely aware of the strength of feeling generated by the takeover, which we have seen in the wider media, the debate this evening and in the House over the past few weeks. Cadbury is a long-established company with a committed work force that are performing well. It is a significant business with an extraordinary heritage and many stakeholders, both in this country and around the world.

As Members have said, it is very early to discuss what might happen after the merger process is complete. Kraft needs to make its plans clearer. Kraft has made encouraging noises about its respect for Cadbury’s brands, heritage and people. In a conference call with investors on 19 January, Kraft’s chief executive, Irene Rosenfeld, said:

“We will continue with a significant presence in the UK and reiterate our previous statements of safeguarding the operations in both Bourneville and Somerdale. We will be a net importer of UK jobs and will continue to have a strong presence here.”

It now has to be very clear about what it will put into Cadbury to build its capacity for growth. I know that my noble Friend the Secretary of State for Business, Innovation and Skills will be having an early meeting with Kraft senior management. He will be looking to hear how Kraft will fulfil the commitment it has made to the Cadbury work force and to the company’s long-term future. Our Government offices and regional development agencies are also in touch with Cadbury and are pursuing further information from Kraft.

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What I am concerned about is that for months Ministers in the Department, particularly the Secretary of State, were indicating their opposition to this takeover. They have demonstrated that they have no powers to prevent the takeover from happening and now they are seeking assurances from Kraft. Can the Minister confirm that they have no powers to enforce these assurances?

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If the hon. Gentleman is patient, I shall discuss the Government’s powers. We are determined that the levels of investment in Cadbury UK are maintained and that, at a time when people are worried about their jobs, the utmost is done to secure those jobs.

A number of concerns have been raised both in the House and in the media about the proposed takeover, and I wish to deal with each in turn. The first relates to the suggestion that the Government could have done more to intervene. Let me make it clear that the Government have no statutory power to intervene in this case. The relevant independent competition authorities are responsible for considering whether it gave rise to any concerns about a possible loss of effective competition. Ministers have the power to intervene in merger cases only where they raise specific concerns relevant to a legitimate public interest such as national security. There seems no reason to consider that such an intervention would be appropriate in this particular merger.

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rose—

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I must make some progress. I might then be able to give way later.

The second question relates to the level of debt involved in the takeover and the knock-on effect that it might have for jobs at Cadbury plants. I am afraid that the answer is that the matter must be one for the shareholders to decide.

The third and final issue that I wish to touch on is foreign ownership. I understand the concerns about the impact on jobs, but we must not forget how much this country benefits from foreign investment. My hon. Friend referred to the investment made by companies such as Toyota and Honda. Indeed, it is not simply new investment for greenfield sites, as she mentioned; companies such as Mini in Oxford and Bentley in Crewe have benefited hugely from foreign investment and from takeover situations. We must recognise that it is very valuable to have a system that encourages investment from overseas. There is currently $5 trillion of foreign investment in the UK—that is $5 trillion of foreign shareholding providing the money for millions of jobs, new investment and innovation—so it would be wrong to cast doubt on the value of foreign investment. Let us not forget that this works both ways; UK outward investment is slightly higher than our inward investment. For example, in 2000 Vodafone took over German firm Mannesmann for £112 billion. We thus have to think carefully about the investor relationship that has served this country so well in those respects.

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Does the Minister intend to address my point about predatory takeovers and the involvement of hedge funds?

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I do intend to address the issue of long-term investment, if I am allowed to proceed. I recognise that there is a valid concern about the nature of ownership. The Government consider that the best way to run a company is through enlightened shareholder value and for directors to take a long-term view. That was at the heart of the company law review that led to the Companies Act 2006. The best companies apply that principle, and we want to make sure that all do. It is up to shareholders to take a decision on the plans in front of them, but they need to look beyond short-term profit.

We believe that there is real value in having a discussion about how we build a stronger culture of long-term commitment to sustainable company growth in this country. That should be based on co-operation between the ultimate owners, fund managers and the corporate sector. Recent reviews by Sir David Walker and Sir Christopher Hogg have raised important issues, particularly to do with the effectiveness of institutional investor engagement in the long-term interests of UK companies. One part of the solution will be the new investor stewardship code on the responsibilities of institutional investors. The Financial Reporting Council will consult on that shortly.

It is important that we take into account the position of all individuals who have funds from which they earn money—pension funds and other investments—and encourage them to take an active role in determining how their sums are invested in future. The Secretary of State for Business, Innovation and Skills recently had a very productive round-table discussion with investors, fund managers and representatives of companies to consider those important issues and to look at how to improve engagement for the long term.

The debate engendered by the proposal and the takeover has created an atmosphere in which many new ideas on long-term investment are being put forward. The Government will consider those ideas as they come forward. They have already initiated debate and reports from Sir David Walker and Sir Christopher Hogg; some of that work predated the proposal. In our discussions with the investor community, we repeatedly stress the importance of long-term investment for the future of British industry, and we stress that long-term investors should have the interests of the United Kingdom at the forefront of their minds.

Cadbury is an iconic brand. It has had, and continues to have, a huge impact, not just on the lives of its work force, but on the community around it and on the country. We understand the concerns that Cadbury employees have at this uncertain time about their jobs and the survival of this valuable British asset. We are determined to maintain levels of investment in Cadbury in the United Kingdom, and to ensure that jobs are secured.

What Kraft has been saying until now is encouraging. We will continue to talk to it about the future, and to discuss its proposals for development of the business in the UK. Ultimately, those are matters not for the Government but for shareholders of the company. The last thing that we wish to do is threaten investment in UK companies, but I believe that there is genuine cause for concern—concern that has been eloquently expressed in this debate. I am sure that the Government will reflect on that. The concern is not about who owns a company, but about the nature of that ownership. We are working to encourage and strengthen among investors a culture of long-term commitment and engagement to businesses based in the United Kingdom.

Question put and agreed to.

House adjourned.