MPs attack Kraft as irresponsible and cynical over Cadbury takeover

MPs will publish a fiercely critical report on Kraft, accusing the American food company of acting "irresponsibly and unwisely" during its £11.6bn takeover of Cadbury.

The report, from a cross-party business select committee, concludes that promises during the takeover by Kraft that it would safeguard the future of a factory in Somerdale, near Bristol, only to announce its closure after the deal was done, had left the company open to charges of either "incompetence" or a "cynical ploy" to win support. Kraft, it says, has damaged its reputation in Britain and will need to work hard to repair it.

The strongly worded report is especially scathing about Kraft chief executive Irene Rosenfeld, who declined to show up for a hearing before the committee in March, saying it "strongly believes" she should have personally given evidence.

The MPs express disappointment that senior management at Kraft has failed to properly engage with the Cadbury union Unite and call on the company to open discussions "as a matter of urgency". It welcomes pledges from Kraft that it will make no further manufacturing job cuts for the next two years, but suggests the commitment should be longer. Unite has been seeking a commitment to last at least five years with no redundancies.

"The report is very critical and is profoundly sceptical," said one Westminster source. "It expresses concerns about the extent to which we can trust the assurances of Kraft."

He cited weekend reports that Kraft bosses had issued Cadbury staff with an ultimatum, of either opting out of the company's final salary pension scheme or a pay freeze for the next three years. "There is a sense that Kraft has got off lightly and that the hearing focused too much on what had already happened. The failure of engagement with the Cadbury unions is extraordinary behaviour."

The MPs also say they are "deeply concerned" that takeovers are being determined by investors such as hedge funds seeking short-term profits, but the report stops short of any hard recommendations about changes to the takeover rules. There has been anger that the future of one of Britain's oldest and best known companies should have been decided by speculators buying shares when the Kraft bid was first mooted, in the hope of turning a quick profit.

It does however welcome an ongoing review of the takeover rules, launched in February, and is supportive of measures being pressed by business secretary Lord Mandelson to benefit company workforces rather than short-term City investors. It says a public interest test should be considered as a part of that review. It also suggests that the 2006 Companies Act needs revision. The Westminster source said that the Cadbury takeover should be important in determining future policy. "I hope there will be long term lessons learned."

Kraft prompted a furore after it announced that it would close the Somerdale plant, with the loss of 400 jobs. Cadbury had planned to close the plant and shift production to Poland, but during the takeover battle, Kraft promised it would keep the factory open. Just a week after the deal was agreed however, Kraft reneged on its pledge, claiming that the move to Poland was too advanced to reverse.

The tone of the report reflects the fury on display during the March hearing in front of the business select committee, chaired by the Conservative MP Peter Luff. During the hearing, the Labour MP for Chorley, Lindsay Hoyle made reference to Kraft's takeover of another British confectionery firm, Terry's, where the American firm made similar promises, before shifting
production to Poland. "They pillaged and asset-stripped that company," he said.

MPs complained that Rosenfeld had snubbed them by not attending in person. She instead sent Kraft's executive vice-president, Marc Firestone, who said the company was "terribly sorry" that hopes had been raised and then dashed over Somerdale. He said the original pledge had been in "good faith".

At the time, Kraft also reassured MPs that it would continue Cadbury's traditions of philanthropy and ethical sourcing. "In acquiring a British icon, we have a responsibility to preserve its heritage," Firestone told the committee.