CADBURY AND KRAFT:A BITTERSWEET MOMENT 5
Cadburyand Kraft:A Bittersweet Moment
Hostiletakeovers are believed to perform a crucial role in corporategovernance mechanism. Hostile takeovers are usually conducted in aneffort to put financial pressure on managers of company whoperforming poorly. Takeovers are believed to discipline and replacemanagers who are inefficient. The threat of takeover also ensuresthat managers act in the best interest of the shareholders of thecompany (Weisbach,1993).Therefore, I do agree that hostile takeovers are conducted ascorporate governance mechanism.
Ido not think that the takeover of Cadbury by Kraft was executed froma corporate governance standpoint. This is because Cadbury’s wasperforming well in the market and in fact was reporting positiveresults from their business operations. The takeover of Cadbury byKraft was executed because Cadbury had lost their edge by becomingthe second largest confectionery producers in the world as a resultof a rival merger. It seems like everybody involved in the takeoverbenefitted but of course the largest beneficiary was Kraft. This isbecause they eventually acquired Cadbury but for much more than Krafthad initially put on the table. The shareholders of Cadbury alsobenefitted from the takeover as they received more cash and shares asa result of the surging valuation of their company over the lastcouple of months since the takeover was initiated.
Thegovernment’s role in regulating takeovers should be in ensuringthat proper due diligence is conducted on companies that wish to makea takeover. This means that takeover companies should adhere to thecorrect financial reporting standards. In addition, governmentsshould protect the local companies in cases where the takeover mighthave adverse effects on a country’s economy. If such is the case,the government should halt the process. Finally, proper valuation hasto be used in takeovers as will ensure that the shareholders of localcompanies are protected.
TheU.K Financial Services Secretary was making this remark behind thebackdrop of many U.K companies being acquired by American companies.If Cadbury would be launching a takeover bid the situations wouldhave been different in terms of the regulations used. For example, inorder to execute a takeover in the U.S, a company has to file withSecurities and Exchange Commission (SEC).
Theshareholders are the primary owners of the company. Therefore, theyshould have a say in takeovers or merger situations. The shareholdersshould have a say on such issues as far as their ownership of thecompany goes. The situation is different in the U.S and U.K asdifferent regulations are used in both countries. The U.K uses thecity code takeover code while the U.S checks with the SEC fortakeovers.
Hostiletakeovers are rare in Asia because of the fact that companies missionand goals revolve around the society and not first making profits.Therefore, it is difficult for companies to be traded likecommodities because this would assert that the shareholders own thecompany.
Therules governing takeovers are similar to those in the U.K. and theU.S. This means that the decision of taking over a company is subjectto regulation by a local authority government entity. However, at thesame time, the shareholders can only so much to halt a takeover asthe boards of directors make the last call.
Inmy country, the board members have the final say when it comes toacquiring a target company. The board of directors is specificallyput in place to run the company and make decisions about a companyconsequently they have a majority of the share of ownership ascompared to the shareholders.
Weisbach,M. S. (1993). Corporate Governance and Hostile Takeovers. Journalof Accounting and Economics,199-208.