Kraft Target of UK Lawmakers' Attacks After Merger


A cross-party committee of British lawmakers has accused Kraft Foods of acting "irresponsibly and unwisely" during its $17.5 billion takeover of Cadbury.

In a highly critical report Tuesday, the Business Select Committee said that the controversy surrounding the deal would have long-term implications for Britain's takeover laws.

The months-long hostile battle by Kraft , based in Northfield, Illinois, to win the 195-year-old British chocolate maker dominated headlines in Britain, where Cadbury is a much-loved brand, amid criticisms about the U.S. company's tactics.

The Business Select Committee said that Kraft's promise to keep open a British factory—only to announce its closure after the takeover was completed earlier this year—had left the company open to charges of either "incompetence" or a "cynical ploy" to win support for its bid.

"Kraft acted both irresponsibly and unwisely in making its original statement that it believed that it could keep the Somerdale factory open," the report said.

"Its actions have undoubtedly damaged its reputation in the United Kingdom and has soured its relationship with Cadbury employees," it added. "Kraft will now have to invest significant time and effort into restoring its reputation and regaining the trust of the public, its U.K. work force and government and ourselves."

Kraft Executive Vice President Marc Firestone apologized to lawmakers when he gave evidence to the committee in London last month, saying he was "truly sorry" for the uncertainty caused by Kraft's backtrack on the factory in Somerdale, western England.

But his apology was met with scathing comments from lawmakers about Chief Executive Irene Rosenfeld's decision not to attend the inquiry's evidence session herself. Brian Binley, a member of the opposition Conservative Party, said her absence was a "sizable discourtesy."

Kraft's pledge to keep the plant open, saving 400 jobs, would have reversed earlier plans by Cadbury to close the factory and move production to Poland. The U.S. company said it changed its mind once the 11.5 billion pound deal was completed, announcing the plant would close by 2011, because it had become clear that it was "unrealistic to reverse the closure program."

An official complaint has been lodged with the U.K. Takeover Panel, alleging that Kraft misled shareholders and workers.

Firestone told the inquiry that Kraft did not plan to shut any more British factories or ax further jobs for the next two years.

Peter Luff, the committee's chairman and Conservative Party member, said that lawmakers would be keeping a "very close eye" on Kraft's commitments to Cadbury's future, including the retention of two research and development centers in Britain.

"Any stripping out of the highly skilled work force at those centers would represent a serious breach of trust, and one that would require a robust response from both Government and Parliament," Luff said.

Union leaders used the publication of the report to renew calls for a so-called "Cadbury law" to prevent hostile takeovers of successful British companies by large multinationals.

"Never again should the short-term interests of shareholders and the hedge-fund boys in red braces making a quick buck come before the long-term interests of household-name British companies and the thousands of jobs and families these companies support," said Jack Dromey, deputy general secretary of the Unite union.

The government and the U.K. Takeover Panel are currently considering a review of the rules and legislation governing takeovers in Britain.

The Business Select Committee warned that any review "should not be a disguise for protectionism against foreign takeovers," but must consider the best interests of the British economy.

Dromey also called on Rosenfeld, who stayed away from Cadbury's factories during the bitter takeover battle, to meet with workers directly.