MPs demand close monitoring of Kraft’s undertakings

06 April 2010

The Business Innovation and Skills Committee today releases its report that scrutinises Kraft’s handling of the closure of the Somerdale factory, sets out Kraft’s future plans for Cadbury and considers the wider implications of takeover policy in light of Kraft’s actions

Peter Luff, Chairman of the Committee, said:

"The controversy surrounding the Kraft takeover of Cadbury has rightly opened a debate on how takeovers in the UK are conducted. That debate must continue, as a matter of urgency, in the next Parliament and I fully expect the next Business, Innovation and Skills Committee to play a key role in any future reform."

The report concludes that Kraft acted both irresponsibly and unwisely in its handling of the Somerdale factory which has damaged its UK reputation and soured its relationship with Cadbury employees. It also sets out a number of undertakings given by Kraft to the Committee in respect of the future of Cadbury, including:

  • to continue to manage Cadbury from within the UK and to continue to produce Dairy Milk in the UK
  • no further compulsory redundancies amongst manufacturing employees and no additional plant closures in the UK for the next two years
  • its obligation to support Cadbury’s existing pension arrangements
  • support for Cadbury’s Cocoa Partnership and Cadbury’s use of Fairtrade
  • confirmation of the funding arrangements for the Cadbury Foundation for the next three years.

The report calls on the Government to monitor compliance with all of these undertakings.

The Committee also calls on the Government to invite Kraft to clarify its intentions in two areas and to put Kraft’s response in the public domain:

  • the lack of any specific guarantee on the future of Cadbury factories at Chirk, near Wrexham, and Marlbrook in Herefordshire
  • the lack of any specific commitment to the current level of employment and world class skills in research and development (R&D) at the centres of excellence at both Reading and Bournville.

Peter Luff said:

"Kraft gave us a number of undertakings on the future of Cadbury, which we have put in the public domain. Kraft will have to deliver, in full, on these undertakings if it is to repair the damage caused to its reputation by the woeful handling of the closure of the Somerdale factory. Given the lack of trust in Kraft at the moment it is vital that the Department for Business, Innovation and Skills keeps a very close eye on Kraft’s compliance with its undertakings.

"The future of Cadbury’s R&D centres of excellence at Reading and Bournville are central to those undertakings. Any stripping out of the highly skilled workforce at those centres would represent a serious breach of trust, and one that would require a robust response from both Government and Parliament."

In the wider public policy context, the Report welcomes the Government’s focus on the issue of 'short-termism' in decision-making on the future ownership of UK companies, and its efforts to engage with institutional fund managers as part of the process. It also welcomes the fact that the Government and the Takeover Panel are considering a review of the rules and legislation governing takeovers in the UK.

The Committee cautions that any review should not be a disguise for protectionism against foreign takeovers; it needs to address all takeover activity, whether entirely domestic or by foreign companies, to ensure that such activity is conducted in the best interests of the UK economy. The Committee also encourages its successor Committee to conduct a detailed inquiry into these important issues and into the role of shareholders and managers of companies more generally in the next Parliament.

Image: PA/Simon Dawson

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