The last bar of Cadbury’s I bought turned out to have been made in Poland, of all places; regardless of whether Kraft gain control of the company or not it’s a fair bet that there’ll be more work outsourced there in the future rather than kept in Birmingham.

Isn’t that an argument for companies to find ways in which British workers can add value to even a chocolate maker? Do Germans, Japanese and other developed countries not manufacture anything? I think there’s good questions to be asked on whether this deal is good for anyone except the likely asset-strippers and the financiers.

If that were true, the last 25 years would have seen a renaissance of British manufacturing, a flowering of new world-beating industrial companies. So where is it?

It’s there for those who have eyes to see it.
Manufacturing output has been increasing over this period.

As Tim Worstall explains on his blog:

Manufacturing output is higher than it was in 1990, higher than 1980, twice what it was in 1960 and three times what it was in the 40s.

Of course Kraft is here to make a fast buck, that’s the nature of capitalism, what’s the British government going to do about it? Well I suppose it can collect more taxes from the population to pay unemployment benefit, possibly impose a bigger tax on those nasty shareholders who voted for the takeover and even label those asset-strippers with derogatory names because they will be outside of UK sovereignty.
The only way your’e going to stop this is to get rid of the system that allows it to happen, and not by pussyfooting tinkering.

what is meant by “asset stripping” here?

how do hedge funds play Russian Roulette with companies?

It’s there for those who have eyes to see it.
Manufacturing output has been increasing over this period.

but that’s mostly down to increased productivity. What about the percentage of manufacturing in the economy? What about how many ppl are employed in manufacturing. The percentage of our total output & exports that come from manufacturing?

Cadburys are no angels when it comes to workers’ rights, ethical production or anything else. If you live by the market sword, you die by it.

I struggle to understand how the writer of this comment could join a political party with the word “liberal” in it.

The argument made runs as follows: because of a hypothetical threat to workers’ employment, the state must step in and ban a legal commercial transaction.

The author provides no evidence to justify this course of action, other than his own prejudices and espoused preference for a (vague) alternative model of ownership.

Such arguments for a “strong state” to defend a apparently strategic chocolate maker amount to little more than confused patriotism and identity politics dressed up in socialist (lite) language.

Oh, and the author repeatedly mis-spelled Peter Mandelson’s name.

What is ignored is the technology required to design, construct and maintain manufacturing plant. Britain has had a weakness in production engineering ( the engineeering of production lines ) for the last 100-120 years, ever since the Germans and Americans overtook us. That is why we are good at R and D but poor at mass production- look at al the faults in the Mini when it was first produced.If we lose Cadbury’s manufacturing offshore we lose a significant prouction engineering capacity in the Midlands.

In Germany, many of the large companies have significant part of their share capital owned by banks who operate long term relationships. This complex ownership of shares between companies, trusts( often set up founding family/families) and banks in many countries dissuades most hostile takeover bids.

“In Germany, many of the large companies have significant part of their share capital owned by banks who operate long term relationships. This complex ownership of shares between companies, trusts( often set up founding family/families) and banks in many countries dissuades most hostile takeover bids.”

I think you’ll find “The State We’re In” was written in 1994 and the financing relationships of the larger Mittelstand firms have profoundly changed in the last 5-10 years. Recent example: Merckle and ratiopharm.

10. Tom. But is it easier to win a a hostile takeover in the UK than in Germany, continental Europe or Japan ?

11. Charlie 2. See Merckle and ratiopharm (as suggested) and draw your own conclusions. I also don’t agree with your underlying assumption that defending strategically significant chocolate makers (UK) or yoghurt producers (France) amounts to anything other than politically-motivated populism by reactionary statists and their dullard media followers.

What is needed is for the government to incentivize indirect employee ownership (throughout the workforce of the *entire* firm) through the use of tax breaks for EBTs. Give the new ‘owners’ the chance to veto any change in ownership in order to ensure long term sustainability and value creation and protect them from the markets. The productivity gains from this implementation may, in the long term, provide good long term value for current shareholders.

My 2 cents.

Sunny @

What about the percentage of manufacturing in the economy? …. The percentage of our total output & exports that come from manufacturing?

Purely relative.

There has been a boom in services – particularly in financial services so manufacturing is, in relative terms, a smaller part of our economy.

But that does not mean manufacturing has been doing badly or declining.

An analogy: if I own the only store in the street, I account for 100% of the economic activity there.

If a second store opens up, I will account for less than 100% of the activity even if my turnover doubles.

‘Promotion of the co-operative and mutual model over the corporate one in the long-run would necessitate a strong government prepared to use state power in such a way.’

Maybe it’s just semantics but ‘strong government’ sounds like the State owns the business, not the employees.

If you are arguing the government should be in the business of supporting employees to buy out their own companies it doesn’t follow you need a ‘strong’ government to do this, merely a government independant of the interests of those currently owning businesses, i.e. one which does not regard capitalism as the default economic model.

“but that’s mostly down to increased productivity.”

Yes. This is what is known as a “good thing”. It is what makes us rich. Getting more from the use of the same resources.

Just to elaborate for the terminally dim (should any wander by of course).

Productivity is x. So we get y things made.

Productivity increases to 2x. Thus we have, from the very same resources we were formerly using to make y, 2y. We are now richer by the value of y.

Good stuff rising productivity, innit?

What makes it even better is, as Paul Krugman continually points out, average wages in an economy are determined by average productivity (of labour). Rising productivity (of labour) thus means rising wages. Rising productivity is a really, really, good thing.

“What about the percentage of manufacturing in the economy? ”

Who cares? No, really, can you come up with any reason or argument for why there should be any specific level of manufacturing in the economy? 5%? 50%?

“What about how many ppl are employed in manufacturing.”

Who cares? No, seriously, who cares? can you come up with any reason or argument for why there should be any specific level of manufacturing employment in the economy? 5%? 50%?

Plus, of course, fewer people employed in manufacturing allows other industries to get labour. If we need, because of rising productivity, to have fewer workers making things we can drop on our feet, then that means that we’ve got more workers who can go and do something else. Write Grand Theft Auto, wipe babies’ bottoms, care for the elderly, run the Eden Centre.

Yes, sure, it’s very difficult for those laid off to move over but we also have generational changes in the economy. What would be the point of having 50% of the working age population in manufacturing as we did in the 50s? Really? Not even Germany has that now.

“The percentage of our total output & exports that come from manufacturing?”

Who cares?

“the danger of asset-stripping is obvious”

No, I’m sorry, but you’ll have to explain this to me. What is the danger of asset stripping? As I understand it what you are thinking about is that Kraft will take something formerly owned by Cadbury’s and sell it to someone else. For a profit. That is what you mean, yes?

Cadbury’s valued that asset at x (let’s say it’s the Crunchie brand). Kraft obviously value it at x plus y%, that’s why they bought it. Let’s say that Hershey comes along and is willing to pay x plus y% plus z for it to Kraft. This is, I think, what you mean by asset stripping?

Why is this a danger? What we’ve just outlined there is the very definition of wealth creation. We’ve moved an asset from where it was low valued to where it is highly valued. And that is the definition of wealth creation.

Exactly the same would be true of Kraft sold Bourneville to Tesco for use as a parking lot. By the very fact that Tesco would be paying more than Kraft thinks it is worth (they must be, otherwise there would be no transaction) we’ve increased wealth by moving that asset to a higher valued use.

“Unite has called instead for reforms to restrict the ability to vote on such deals to long-term shareholders.”

Oh aye? Gosh Mr. Tesco shopper, you’ve only owned that bag of shopping for a few minutes. So it’s not theft if I take it from you, is it? Deprive you of your ownership rights? Take away your right to determine who that food feeds?

“Promotion of the co-operative and mutual model over the corporate one in the long-run would necessitate a strong government prepared to use state power in such a way.

Of course, the right would resist and complain incessantly about ‘meddling’ government”

No, they’d (we’d?) complain bitterly about theft. And they’d be right too. You want to control Cadebury’s? Go and buy it then. Don’t twist the law to steal it from those who currently do own it.

Finally, wondrous as it is to see myself being quoted I should point out a minor error on my part. Those figures are true for up to 2007. As a result of the current recession manufacturing output is around 1990 levels again. But then in my defence I did write it before the latest figures came out.

And it’s also true that manufacturing output is *more* variable than services output. So we expect manufacturing output to go down further in a recession than the general fall in GDP. One reason why we rather like having an economy with lots of services based output…..makes the booms and busts more moderate.

yes, on the asset stripping point, if you don’t want to sees Cadbury run by a mega-corp like Kraft, surely you want to see Cadbury assets like Trebor Bassett, Fry’s, Maynards and Halls sold by Kraft, so they can exist as smaller firms, of the sort you prefer. There is no reason to think that levels of employment will be lower should these brands be sold compared to if Kraft holds onto them – in fact it would be usual to assume most jobs would be lost under Kraft ownership, if it consolidates operations.

It’s not obvious why the OP regards asset stripping with such alarm – I shall assume it’s not because the author didn’t understand what they words mean.

Flowerpower@14 , Tim W@16 – The “decline” (for want of a better word) of manufacturing has left us with problems though. We still have the problem of the trade deficit, the growth of services has not done enough to sort out the problems with the balance of trade.

There is also the problem of unemployment, the new jobs that have been created have not really occurred in the places where old manufacturing jobs were lost.

“There is also the problem of unemployment, the new jobs that have been created have not really occurred in the places where old manufacturing jobs were lost.”

I agree absolutely. The transition has not been easy. But that’s still not a point in favour of increasing manufacturing, or of thinking that manufacturing should be x or y part of the economy. That’s an argument about easing the transition.

“We still have the problem of the trade deficit, the growth of services has not done enough to sort out the problems with the balance of trade.”

Well, yes, but….trade in goods (ie, all industry plus agriculture, sorry, this is just the series I looked up) has been in surplus how many times do you think since 1945? Actually, it’s 6 whole years. 56, 58, 71 and then 80, 81 and 82.

Trade in services has been in surplus ever year except 64 and 65.

The annoying thing is that somewhere in what Darryl is saying is a point. The problem is the true points are the things he’s not saying; whereas the things he is saying are broadly incorrect.

The wider issue is that much of the Left appear not to have the language or expertise to describe the economic world in which we live, and fall back on former Marxist hacks (like Larry Elliott, though there are many more) and their Cold War era analyses. As I wrote above, the world has moved on from the late 1980s/early 1990s.

“Asset stripping” for instance may have applied to the break ups of 1970s conglomerates but does the term make much sense when applied to a brand-led company that has already outsourced much of its production overseas?

A socialistlite narrative eh?

Didn’t realise the Torygraph was socialist
http://blogs.telegraph.co.uk/news/christopherhope/100022734/britains-cadbury-is-bought-by-americas-kraft-the-french-would-never-allow-it/

and what about when Bush blocked the takeover from the Dubai company? Did anyone accuse him of socialism?

The wider issue is that much of the Left appear not to have the language or expertise to describe the economic world in which we live

Mmmmm… really?

That’s funny. Yesterday The Times was saying that no jobs would be lost at Cadburys
http://www.timesonline.co.uk/tol/comment/leading_article/article6992979.ece

today its reporting thousands will be lost:
http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article6994488.ece

Again – trying to pretend the left is illiterate on economics – given the recent financial crisis – really is the height of myopia

Sunny is right … this can’t be stressed often enough – the self-described right are by no means adherents of free market principles, and are quite prone to endorsing state interference if it suits their ends. The greatest lesson from the crisis that we haven’t yet learned is that “industry interests” and “free-market interests” are not the same. In fact, they are more like oil and water, as the industry profits most in the absence of true market competition. And saving capitalism from the capitalists

Tom. If Kraft have borrowed money at a very low interest rate, which then rise and paid slightly over the odds, Cadbury then ends up with massive amounts of debt. Sales occur but not enough to cover the debt. Much of the problem with Britain is debt.

Only about a third of takeovers make profts for shareholders. Tim Martin of JD Weatherspoons has ben very critical and rightly so of many of the pubcos burdening the pub industry with debts.

Private equity does not have a good reputation for spending on R and D. Making short term money by selling assets is easier than building up long term value through organic growth. The cmpanies are closed down, tax payers end up paying the unemployment bill and local and national governments receives less tax.

The design of the production facilities and related R and D are probably based in the UK, which is of benefit to this country.

“You want to control Cadebury’s? Go and buy it then”

Me: I’d like to borrow 11 billion please?
Bank: What do you want it for?
Me: To buy a succesful profit making company.
Bank: Well..thats a lot of money – how can we be sure you’ll pay it back?
Me: I’ll secure the loan on the company I buy. Sell a few of its assets to meet the interest payments, pay myself £10 million in administrative and consultancy fees. Then bugger off to a carribean island in a few years time when the previously profitble company starts struggling to meet the interest payments.
Bank: Well that doesn’t sound in my interests….
Me: well you can pay yourself a nice lenders fee, it will make your balance sheet look better, then in a few years you’ll have made enough from similar deals to retire to the carribean. Then you can combine all the crap deals into one and sell it to pension funds.
Bank: Why would they do that?
Me: well you throw the accountants a few quid…and eventually the whole government will have no choice but to bail everyone out.

Charlie2: private equity’s reputation is undeserved

“sales occur but not enough to cover the debt” well maybe, but you have to remember Cadbury’s distributed dividends to shareholders, so even Kraft finds no cost savings, it can divert money that was going to dividends towards debt servicing.

But you right – there is a tendency for acquiring companies to over pay, and paying too much plus debt financing spells trouble. See The Winner’s Curse

Oh, and here’s another Tory against the buyout. Damn these socialists get everywhere!
http://voteskeltonforchange.blogspot.com/2010/01/keeping-cadburys-british-should-be.html

Sunny H – if you are going to quote, it’s best to do it accurately before throwing round insults.

“Such arguments for a “strong state” to defend a apparently strategic chocolate maker amount to little more than confused patriotism and identity politics dressed up in socialist (lite) language.”

I see nothing in what you have said that knocks these points.

Meanwhile, I presume Dubya used his own variety of spurious economics to defend his point of view. Politicians and political hacks use whatever arguments they can reach for to defend their decisions.

And quoting the hypocritical ramblings of the idiot media (21, 22) at me hardly shakes my argument.

Neither does your other point (final para, 22) about Leftist critiques of the economy. Failures of finance are logically unconnected to the irrelevant witterings of much of the Left over economics for the last decade. (I mean, have you read Noreena Hertz’s drivel?) Just because someone else is wrong about economics doesn’t make you right about it. Logic fail.

24. Charlie

“Tom. If Kraft have borrowed money at a very low interest rate, which then rise and paid slightly over the odds, Cadbury then ends up with massive amounts of debt. Sales occur but not enough to cover the debt.”

Moody’s just confirmed Kraft’s ratings as investment grade. The outpourings of grief at the company’s excessive debt are themselves rather inflated.

Sunny, I think you’re tilting at straw windmills again. What Tom said was that the OP was presenting an argument that amounts to “little more than confused patriotism and identity politics” and that this argument was merely “dressed up in socialist (lite) language”.

You can’t really disprove that by pointing to people who make arguments that amount to little more than confused patriotism and identity politics, but leave off the dressing. Protectionism is not necessarily socialist (steel tarriffs? Hell, the whole scheme of Imperial Preference for all the Joe Chamberlain fans out there), but it is counter-productive. It is, in fact, no less stupid for being found equally among Telegraph hacks, Lib Con writers, Government ministers and Tory PPCs.

“and what about when Bush blocked the takeover from the Dubai company? Did anyone accuse him of socialism?”

No, but then I’m not accusing anyone of socialism now. I am accusing certain people of rank stupidity now: just as I accused Bush then of rank stupidity.

We can think of this takeover another way of course. Kraft have just decided to send £11 billion into the UK. Pretty nice chunk of change actually, worth having, don’t you think?

28. Tom. My concern is the lack of funds to cover further R and D, training ,sales and marketing. Only a third of take overs make money in the long run for the company. M and A are great for those who earn fees from them. My concern is that the economy just becomes further unbalenced.

32. Tim Worstall . Docks have security implications . Al Qa’eda infiltration of a middle east organisation is far more likely than a western one. How can a wester country full vet a foreign organisation? What happens if the FBI/MI5 becomne concerned about the acttivities of a senior member of an organistion who controls a countrys docks?

P&O didn’t own the docks. They operated a few on leases. And at no time did they have control over security: that is and was the responsibility of the authorities.

But please note that your thoughts here are irrelevant when comparing with Kraft and Cadbury. For the Dubai Wolrd Ports case was about the operation of US docks being sold “from one foreign company to another”. Here everyone’s complaining about a British company being sold to foreigners. Rather different.

Although one question I do think is interesting. Just how many of Cadbury’s shares were held by UK bods anyway? They had an ADR program (ie, special shares listed in New York so that yanks could buy them).

And if you want to talk “stakeholders”…well, who are the “stakeholders”? The customers? The some number of those are outside the UK, no? How about the workforce? The vast majority of those are outside the UK. Suppliers? What with the major ingredients being sugar and cocoa, the majority of them would be outside the UK as well.

So we have a rather amusing scenario here. The left urges us to consider the thing holistically, in the whole,. include the stakeholders. They also seem to think that we should fight to “keep the company British”. But if we look at the stakeholders, the company ain’t British anyway.

I can’t see how it would ever be right for the government to prevent shareholders selling their shares to anyone who wanted to buy them. However, there is a valid argument for restricting voting rights to those who have been shareholders for 6-12 months. The CBI called for six months before voting rights a few months ago. Hedge funds ended up owning 25% of Cadbury shares that they had bought since the opening offer. They legitimately only care what profit they can make not what is in the best long-term interest of the company.

Are there any limits to foreign ownership? What about a Russian or Chinese firm taking over BAE or an Iranian firm offering to buy BP?

What happens if the FBI/MI5 becomne concerned about the acttivities of a senior member of an organistion who controls a countrys docks?

They investigate him?

34. uklierty. If that person is a foreigner, living overseas protected by their government( due to family connections) from investigation when passing on information to a terrorist organisation. One aspect of positive vetting is to ascertain if there are any periods in somebody’s life story for which they cannot give an adequate explanation. If a foreigner who controls or has access to information on the security of a docks has spent time or is friendly with those who have spent time in a terrorist training camp and are supportive of their ideals, they are a security risk.

You say that the government were “helpless”. Is that true? The Chairman of Cadbury’s doesn’t seem to believe this:

————————-
QUOTE: A raft of nationally important companies, including British Gas parent Centrica, are at risk of foreign predators unless the Government protects them, Cadbury chairman Roger Carr reportedly said yesterday.

The boss of Cadbury – who is also chairman at Centrica – is urging the Government to look at measures that could protect potential strategic assets from takeovers by overseas groups.

His calls follows last week’s victory by US firm Kraft Foods in its takeover battle for Cadbury after the Dairy Milk maker’s board backed an 850p-a-share offer, which will end an independent history dating back 186 years.

Mr Carr told the Mail on Sunday the Government could have intervened in the Cadbury deal and “stopped it all overnight”. “But not one action was ever taken,” he said.

He added: “If the Government is concerned about these events, it has to look at ways of preventing them.

http://www.southwestbusiness.co.uk/news/8203-Risk-takeovers/article-1749798-detail/article.html

UNQUOTE
———————————–

The Guardian has a whole list of possible take-overs of “important” UK companies. Didn’t France declare that “yogurt” was a strategically important industry?! It’s a brave decision by Labour, a lot of votes lost, instead of a lot of votes one.