EOY.TV Week 5:Takeovers present a challenge to both management and employees. Honest communication with staff is as important as getting the financials right

EARLIER THIS month US food giant Kraft won a battle to take control of Cadbury. This ended a five-month impasse during which the Dairy Milk and Creme Egg manufacturer resisted Kraft’s hostile takeover bids. It also ended Cadbury’s 186-year history as an independent company.

The news was met with protests by workers, who quite rightly fear for their jobs. Kraft will be saddled with massive debt as the deal is valued at £11.4 billion (€13 billion) and, as a result, it will have to implement huge cost-saving initiatives. It seems impossible to achieve this without cutting jobs among Cadbury’s global workforce of more than 45,000 (of which about 1,200 work in Ireland).

The Kraft-Cadbury case illustrates perfectly the difficulties that can arise in a merger or acquisition situation.

On paper, the deal makes sense for Kraft as it will transform it into the world’s largest confectionery group. However, the takeover is fraught with difficulties. Cadbury is an iconic British company, and its workers were proud of its heritage and independence. Kraft is a huge, acquisitive US conglomerate.

In addition to the legitimate fears that Cadbury workers harbour about their jobs, there is the potential for a clash of cultures when integrating the two companies.

Human resources expert Seán O’Driscoll of Athrú Consultancy says one of the biggest risks to an organisation being taken over is that it will lose its best people. This is likely to happen if there is insufficient planning on how to merge the cultures of the two organisations to create a new culture, he says.

Research shows that as many as 50 per cent of executives can end up leaving acquired companies shortly after a takeover. This is already starting to happen in Cadbury.

In the wake of the takeover announcement, its chairman, chief executive and chief financial officer all said they would stand down.

Jeanette Lindfield of Pace Learning, who implements change management programmes in companies, says companies tend to manage the merging of processes and systems quite well, but they often fall down on the people side. “The first thing people think about when going through change is, ‘How is it going to impact on me?’” she says.

Interestingly, she has found that at times of organisational change such as a takeover, every employee, from the person on the factory floor right up to the chief executive, goes through the same emotions, and wonders whether there will be a future for them in the company following the takeover. Will they be sidelined, promoted, demoted or let go?

This uncertainty causes anxiety and can be demoralising. “Not enough consideration is given to that,” she says.

Getting the people aspect right is just as important as getting the financials right if the merger or takeover is to be a success, O’Driscoll says.

So what should firms do to manage the process?

Companies cannot communicate enough with employees, Lindfield says. Here again, Kraft has fallen down.

Some commentators have suggested that Kraft’s chief executive, Irene Rosenfeld, missed a trick by not explaining how Kraft might offer new opportunities to Cadbury workers, with the result that the focus was entirely on the predicted job cuts.

Workers’ suspicions of the “barbarians at the gate” were further heightened when Kraft backtracked on its decision to keep one of Cadbury’s factories in Bristol open. This factory is now to close, with the loss of 400 jobs.

According to O’Driscoll, it is crucial that employees who are going to lose their positions following a takeover are dealt with fairly and in an upfront manner.

The remaining employees are going to have to carry the load, and seeing colleagues being treated poorly creates a “bad taste”, which often ends up costing a firm its best people, he says.

Kraft also needs to communicate clearly to workers whether it will honour Cadbury’s heritage during the integration process (as was successfully done when Guinness and Grand Metropolitan merged in 1997 to form Diageo), or whether it will just be swallowed up and subsumed into the larger conglomerate.

Information should be shared quickly, O’Driscoll says. The organisation making the acquisition must have its people on the ground to create some certainty, to give staff timelines and to let them know what is going on.

In a hostile takeover situation, the acquiring company needs to act quickly to “kill off” the “scaremongering” that everyone is going to be fired, O’Driscoll advises. They must then work with the people in the acquired company to let them see that they are not the “ogres” they think they are.

No doubt this is easier said than done, and it will be interesting to see whether Kraft manages to pull it off.

Watch Brendan Roantree of Zed Candy discuss takeovers, managing change and the potential for expansion into emerging markets at irishtimes.com/business/education or on eoy.tv, the dedicated website for the series.

Next week: the role of technology and e-commerce