Kraft (NYSE:KFT) Leaves Bitter Taste in UK Over Cadbury Takeover

If you aren't from the U.K., it may be hard to relate to the response of the country to Kraft (NYSE:KFT) taking over chocolate maker Cadbury, promising to keep a factory open, which upon completing the deal, reversed direction and announced they were going to close it.

Kraft acquired Cadbury for $17.5 billion, largely on the basis they would keep one factory open in Britain after the deal was made.

To make matters worse, Kraft chief executive officer Irene Rosenfeld didn't personally come to the Britain to explain what happened and why, making the situation even more frustrating, generating even more anger and loss of faith in the motives of the company.

The Business Select Committee said this, "Its actions have undoubtedly damaged its reputation in the United Kingdom and has soured its relationship with Cadbury employees. Kraft will now have to invest significant time and effort into restoring its reputation and regaining the trust of the public, its U.K. work force and government and ourselves."

Originally Kraft said they would keep a factory in Somerdale open, which would have kept 400 jobs in the country. The company had decided to move the production facility to Poland, which opened the door for Kraft to make and win the bid.

After successfully winning the bid, Kraft afterwards realized it would be "unrealistic to reverse the closure program" which has already had undergone the beginning of the process.

I agree with the Business Select Committee in one area, that this could have been the result of "incompetence" on the part of Kraft, because of their conclusion of it being unrealistic to stop the move to Poland.

In this case it would have come down to due diligence, and evidently Kraft found something once they had acquired Cadbury which ended up with them changing their minds. This should have been discovered before the deal was made.

The other accusation from the Committee was that it could have been a "cynical ploy" by Kraft to gain support for the bid, which wasn't popular among the British people.

Britain does have to be careful about a knee-jerk reaction to the situation, which while unfortunate, still only involved about 400 jobs. Calls are for changing of the laws and new regulations which could increase protectionism in the country, which would hurt Britain on a far larger basis than this temporary setback.

Kraft stated they have no plans to close any more of the business over the next two years in Britain, and have no plans to lay off any more workers at Cadbury. The British are having a little trouble believing that after the change of mind in closing the factory.