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Kraft keeps promise: shuts Cadbury's Somerdale factory news
03 January 2011

Kraft Foods has kept its promise of closing Cadbury's Somerdale factory in Keynsham near Bristol -  despite having been at great pains to assure the British public and Cadbury workers that it was comiitted to to save the plant from closure, during its 2009 hostile takeover of the UK confectioner.

In October 2007, Cadbury announced that it would close its Somerdale factory and transfer the operations to Poland and to other plants in England, which would lead to between 500 and 700 job losses.

The company was investing around $100 million in expanding and upgrading its Polish factory.

At the height of the four-month $19.6-billion hostile takeover of Cadbury, which was opposed by the Cadbury union and British public, Irene Rosenfield, the CEO of Illinois-based Kraft had announced that in the event of Cadbury merging with Kraft, she would save the Somerdale factory from closure.

After securing Cadbury in February 2010, it took just a week for Rosenfield to renege on her pledge on the plea that she was not aware how far Cadbury had advanced in its plans to shutter the factory and move its operations to Poland.

Although Kraft had no access to Cadbury's books during its hostile takeover, but being in the same industry and armed with a battery of advisors, Kraft is believed to have known how far Cadbury had progressed to expand its Polish factory.

The 250 year-old Somerdale factory, which produced Crunchie, Caramel, Double Decker, Picnic, Chomps, Mini Eggs and Turkish Delight, has stopped production during the run up to Christmas and a skeleton staff of 50 have been retained until the plant is fully shuttered in March.

Kraft is also planning to shift part of Cadbury's business to Switzerland, a move that could result in loss of millions in tax revenue every year for the UK exchequer. (See: Kraft to move part of Cadbury to Switzerland to avoid UK taxes)

Under the proposed plan, which is likely to be finalised this year, ownership of Cadbury's key brands including Dairy Milk, Crunchie, and Twirl will be transferred to a Zurich-based-holding company.

The move is not expected to not significantly affect the Birmingham-based Cadbury's UK staff, but the company would be integrated into Kraft Food's existing European business model.

Some projections indicate that Cadbury, which has been paying around £125 annually to the UK treasury, could slash it by over £60 million through the move.

The Mail Online had reported in July 2010 that 120 out of 170 Cadbury managers and executives have quit since the US food giant took control of the London-based Cadbury.

In any major acquisitions there are always some executives that resign, but the large numbers are shocking, say analysts.

Among those who have left the company are creative, design and marketing specialists, including Phil Rumbol, the marketing executive who created award-winning ads like the 'drumming gorilla' campaign.

Mark Reckitt, the chief strategy officer and the most senior executive of Cadbury, left the company in May. He and Kraft's Tim Cofer were in charge of integrating the two companies and were reporting directly to Kraft's chief executive, Irene Rosenfeld.

Last week, workers of Cadbury were shocked that Roger Carr, the former chairman of Cadbury who saw through the sale of the company to Kraft, being knighted for services to the UK industry. (See: Workers shocked as UK knights man who sold Cadbury)

Sir Roger, who left Cadbury after the takeover with an estimated £4-million package, was praised by the City for getting a good deal for shareholders when the Cadbury sale went through in February.

However, the shock and anger on his being knighted is misplaced since he had initially opposed the deal and was looking at the UK government to intervene to stop the transaction from going through.

Speaking at the Said Business School in Oxford, England in February after the takeover, Carr, who oversaw one of the most acrimonious takeovers in the UK's corporate history, said that the UK takeover rules should be changed to 60 per cent of shareholders approving a takeover, rather than the present 50.1 per cent in order to reduce the power of hedge funds, which buy a company's stock after a bid has been made.

During the four-month period after Cadbury first rejected Kraft's takeover proposal in early September, hedge funds, looking for quick profits acquired 26 per cent of Cadbury stock from long-term investors.

Eight of the largest buyers were hedge funds or other short-term traders, who booked profits in millions in a very short span of time.

''It may be unreasonable that a few individuals with weeks of share ownership can determine the lifetime destiny of many,'' Carr said.

Venting his anger at hedge funds, Carr had even proposed that hedge fund speculators should be banned from voting in a hostile takeover bid.

The British anger at him being knighted is also misplaced since Kraft had borrowed £7 billion ($11.5 billion) to finance the takeover, with most of it coming from the Royal Bank of Scotland, in which the UK government held 84-per cent stake.

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Kraft keeps promise: shuts Cadbury's Somerdale factory