LONDON BRIEFING:Takeover by Kraft exposes brutal pragmatism driving foreign corporations

WHEN KRAFT was bidding for Cadbury amid a storm of criticism a year ago, the American company was full of warm assurances.

The corporation would reverse plans of former owners to close a factory near Bristol and shift production to Poland, and Irene Rosenfeld, the Kraft chief executive, cooed that she had “great respect for Cadbury’s brands, heritage and people”.

Within weeks of the deal being done, it became clear that the plan to close the plant would go ahead after all, with the loss of 400 jobs.

That was the first betrayal. Rosenfeld later declined to attend a House of Commons select committee, sending cronies instead. In recent days, it has emerged just what Kraft’s respect for Britain really amounts to.

Kraft intends to switch control of Cadbury to Switzerland, enabling the company to deprive the UK exchequer of millions of pounds in tax revenue at a time when the country can ill afford it.

Last year, Cadbury paid £200 million in tax, a sum which will now be slashed.

The episode has exposed the brutal pragmatism that drives most businesses, but which is amplified when a company is owned by a foreign corporation, with little stake in the UK or any other far-flung country in which it might own a subsidiary.

The former business secretary Lord Mandelson, who had been in office during the takeover, suggested at the weekend that Kraft was not to be trusted.

“Whatever assurances Kraft gives about Cadbury’s future in the UK, this move is the beginning of a slippery slope.”

Jennie Formby at the union Unite went further still and said Kraft and other multinationals were “behaving like rogues”.

It wasn’t the first time that a company had shifted to a brass plate in Switzerland, which has a lower rate of corporation tax than the UK – a similar move happened when Walkers, the crisp maker, was bought by PepsiCo.

In the UK, corporation tax is 28 per cent, in Switzerland, it is just 15 per cent.

Kraft defended the decision and said the same model had “helped the company to grow faster in the past” and was “driven by business needs”. It is the same search for a lower rate of tax that has sent some British companies, including the advertising and marketing giant WPP, to Ireland.

The move by Kraft, though, has sparked widespread anger and reignited the debate about the relative ease with which foreign firms can acquire British companies.

Over the past decade under the laissez-faire direction of Labour, swathes of British companies have been bought by foreign firms.

Large parts of the country’s infrastructure are now owned by overseas companies, including sections of the rail network, water firms, most of the nation’s energy businesses and its main airports, run by BAA and acquired by the Spanish firm Ferrovial.

The ports business, PO, is now owned by a Dubai company, even though the United States balked at a similar deal in America and prevented it from going ahead, arguing that its ports were of strategic interest.

Overseas buyers are often boosted, some say unfairly, by sovereign wealth, including the South Korean firm that recently bought Britain’s Dana Petroleum.

A recent report from the Office of Fair Trading concluded that 38 per cent of Britain’s infrastructure is now in foreign hands and warned of “negative effects” on the country when owners decide to cut costs. At the same time, other countries make it stubbornly difficult for Britain to buy their companies. The most recent example was the Canadian government blocking a £24 billion bid for the company Potash by British mining firm BHP.

The Canadian industry minister Tony Clement stepped in, saying that he was not satisfied the bid was of “net benefit to Canada”.

In October, the Takeover Panel in the city of London announced new rules to make foreign takeovers of British companies more difficult.

The panel will force hostile bidders to publish their plans for the target company, including possible closures and job losses, with sanctions imposed on firms that fail to keep their word for at least a year. But the changes to the rules were widely condemned as worthless.

Given the level of savings Kraft will make by shifting Cadbury to Switzerland, it seems unlikely a penalty would have acted as a deterrent. It all seems too little too late.

David Teather writes for the

Guardian

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