5. The impact on and reaction of stakeholders to takeover and mergers

Takeovers and Mergers are common ways for company to expand. A merger is where the companies voluntarily join together to benefit from the possible advantages of working together, however a takeover is when one company will buy another company, this will be done by buying 51% or more of the company shares to gain control, this will usually be to use its expertise and assets in order to benefit their original company. Any type of takeover will effect stakeholders, stakeholders can be internal (shareholders, employees, managers) or external (suppliers, customers, the community and rivals). Whether they are internal or external they will have various opinions and feelings about a takeover. The extent as to which they are effected by the takeover will be different, for example employees might fear for their jobs, however customers will only be concerned about the quality of the products after the change of control.

A takeover or merger will have a direct impact on all employees in the sense that they might be made redundant, or even if they are kept working for the company they may face different working conditions.  An example of a takeover where employees were highly affected was Kraft’s takeover of Cadbury. Cadbury employed around 45,000 people in 60 countries including 5,600 members of staff at eight sites in the UK and Ireland. Before the takeover was completed Kraft agreed to keep open an underperforming factory in Somerdale, however once they had completed the purchase they immediately shut the factory, making all 400 employees redundant. This unexpected change of decision by Kraft left all other employees at the other factories fear that they may also lose their jobs.  In the next few months Kraft announced that it was to axe another 200 jobs in other factories through voluntary redundancy or redeployment. This meant that employees didn’t know if they had a future in the company, therefore their performance could have been affected in a negative way, by employees felt less motivated, taking more days off and having lower productivity. However this changed and employees started to feel less worried about losing their jobs when Kraft announced that they planned to spend £50m on the development of new products therefore creating 54 new jobs in the innovation labs. Employees started to feel that they jobs were safe due to the fact that Kraft was now taking on more workers instead of making more job cuts. However any workers that were made redundant gained large amounts of money of redundancy pay, this is due to that fact that Kraft was forced to pay each worker on their performance for the whole time they was working for Cadbury and not just the few months after Kraft took over. This means that they were given far more reasonable redundancy terms.

Shareholders are other types of stakeholders that can be affected by a takeover or merger. In the Kraft and Cadbury takeover the shareholders were not happy, Legal & General one of Cadbury’s biggest shareholders said they felt that the shares were worth more than what they was being sold for and that Kraft’s offer were underestimating the long term value of the company if the offers they gave.  Before the deal was made Felicity Loudon a distant family member of the Cadbury founders urge shareholders to reject Kraft’s 850p a share offer, the offer being made up off an offer for 840p for the share and a final dividend of 10p a share. This was due to her feeling that Kraft would not honour the way that Cadbury was previously being run and that is wouldn’t respect its British history.  However Cadburys chairman announced a recommendation that all shareholders accept the offer due to him thinking it was a fair price and that they are unlikely to gain a higher offer in the near future.  The offer that Kraft has was accepted with was an improved offer from the previously offered of 770p for each share, the previous offer was rejected straight away and described as derisory by Cadbury’s chairman.  However Cadbury shareholder should be happy by the dividend they received in 2009, the final dividend paid to them at the end of 2009 of 12.3p, added to the dividends received during the year meant that they had received a total dividend of 18p for the whole year, this was 10% more than they received the year before.

The government are external stakeholders who are affected by takeovers or mergers when it involves large companies.  Both Kraft and Cadbury’s are large companies therefore largely involving the government. Kraft has its biggest presence in North America, unlike Cadbury which is mainly in Europe. Therefore if Kraft was to choose to move Cadbury’s out of the UK, it would mean that the 5,600 people that are employed in 8 factories around England and Ireland would be made redundant.  Such a large amount of people being made redundant is a worry for the government because it means that the unemployment rate will be increased and more people will apply for unemployment benefits from the government, therefore taking money which could have been used by the government elsewhere. In addition to this Cadburys and its factories are currently generating a lot of tax for the government and without that tax the government will have less money to fund various projects such as funding schools and paying benefits out to people.  However Cadburys currently has 8 factories around the UK that are fully equipped and functioning in making Cadbury’s products, even though the workers are fairly low skilled and could be found elsewhere in the world, it would be an unnecessary cost for Kraft to move the factories in another country.

                In conclusion takeovers will affect a lot of people from within or outside of the actual businesses, however some people such as shareholders and employees will be more affected than others. In the Kraft/ Cadbury take over the different stakeholders mostly all had a negative feeling towards the takeover. Employees are worried about the potential loss of employment; shareholders of both companies are worried about receiving less money than if the companies were to stay separate, the government worried about national unemployment rates and customers worried about how the quality of the product would be affected.  After the takeover Kraft had to decide which of the stakeholders they wanted please the most, shareholders and employees both have high interest in the takeover, however shareholders have more power. Kraft decided that the shareholders were to be prioritised and they made more than 400 employees redundant in order for the Kraft shareholders to receive higher dividends and in order to pay back some of the debt that Kraft acquired whilst buying Cadbury’s. This means that the shareholders of Kraft are happy and they will be pleased with the outcome of the takeover. But on the other hand, this therefore means that all other employees will now be worried for their jobs and the government are now suffering due to Kraft’s decisions.