Kraft and Cadbury

Today's business news is Cadbury's decision to be bought by Kraft. Swiftly reading the UK press it seems that the general mood is one that this is foolish decision generated by short term profit rather than long term value. There is nothing that I've read so far that indicates any intention by Kraft of preserving aspects of Cadbury's business. The signs are not good for Cadbury's jobs, the brand, or anything that will enable Kraft to get any return on its investment. This may well turn out to be an AOL-Time Warner lookalike in terms of outcomes although AOL-Time Warner was billed as a merger, while the Kraft/Cadbury is being billed as a takeover i.e. an acquisition.

(An explanation of the difference: a merger is the combination of two similarly sized companies combined to form a new company. An acquisition occurs when one company clearly purchases another and becomes the new owner).

It's interesting that this is the 10 year anniversary of the AOL-Time Warner deal and there is a lot of commentary on what went wrong there – I wonder if there are lessons to be learned for Kraft/Cadbury? Gerald Levin, former chairman and CEO of Time Warner, notes that he didn't pay enough attention to the people and the psychology of the merger 'with enough compassion' – as he lost track of 'management as humanist art' because 'frankly, we have a Wall Street issue and we are driven to deliver', while Steve Case, the co-founder of AOL, says that making more determined efforts to take the senior management teams 'blow them apart' and set up a new company would have been a better approach. He repeats Gerald Levin's point that "execution is about people" and he now focuses more on the people side as one of the lessons he's learned from the merger.

The Times headline today on the story is "Thousands of Cadbury jobs under threat as Kraft swallows a British icon". The situation may change, of course, Cadbury shareholders have until February 2 to accept or reject the offer. But once this type of thing is rolling it rarely happens that the decision is reversed. Earlier this month Warren Buffet urged Irene Rosenfeld, chief executive and chairman of Kraft, not to raise the offer for Cadbury but she did. It's possible that Ms Rosenfeld is gambling with her job. Time will tell on that.

What does this type of takeover mean for the organization culture and design? Well there's been no talk that I've come across so far in this case on wanting to protect Cadbury culture, people, or heritage. (Unlike in the AOL/Time Warner case where there was a statement on this). In fact Irene Rosenfeld told The Times that Cadbury job losses would come, mainly in administration. So it appears at first sight that the culture of Cadbury will be lost as Kraft imposes its style and approach.

The design of the acquired company has again not been specified (as much as I've read). Usually in a takeover like this there is a high degree of resource intensive work required to transform processes, systems, procedures and other infrastructure elements into the acquirer's desired mould. It always costs more than anticipated not just in financial terms but in other costs – customer satisfaction, employee motivation, and so on.

In a different acquisition approach as when, for example, – Amazon acquired Zappos (July 2009) – the statement was unequivocal that Amazon would, in effect, be leaving Zappos alone, in order to protect the culture of that company, and would be leaving the current design of it in place also.

So two different approaches to acquisition with what I'm forecasting as two different outcomes. The Kraft one will fail to achieve the intended value while the Amazon one will. achieve it.

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