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The families behind the Cadbury/Kraft bid

Otis W Baskin is an associate of The Family Business
Consulting Group and professor of management at the Graziadio School of
Business, Pepperdine University.

 

As the confectionery world waits to see the outcome of Kraft
Foods' recent surprise bid for Cadbury, many different story lines have
developed. 

There is, of course, the financial story of EBITIDA, leverage
ratios and cash flows that have been used to support arguments for and against
the takeover. There is the on-going story of UK vs US business practice that
some have expressed as a conflict between "unbridled capitalism"
and  "principled
capitalism". And there is also the story of a once local business, committed
to the communities it serves, now facing opposition from some in those
communities over its plans to close "out of date" facilities, shed
jobs and move production to Eastern Europe.

But the real story here is of family business, not just the great story of the Cadbury family but also the story of an industry where family ties are still driving decisions in important ways.

At first glance we may be tempted to see the offer to buy Cadbury as another example of a great family business name being taken-over by a multi-national corporate giant. But the family's control ended much earlier and the 1989 merger with Schweppes took Cadbury global itself. 

The acquisitions of Sunkist, Canada Dry, Snapple and others, including a licensing agreement with Hershey, turned Cadbury into a multi-national conglomerate that eventually divided itself into two with the separation of the drinks and confectionary businesses in 2007.

Of course, the Cadbury tale is one of the world's great family business stories. Founded in Birmingham, England in 1824 by John Cadbury, the business became a force for both good business practice and good social values. As a committed Quaker, Cadbury wanted to offer tea, coffee and drinking chocolate as alternatives to alcoholic beverages.

When the chocolate business grew to the point that tea and coffee were no longer needed as part of the mix, the sons of the founder, Richard and George Cadbury, moved their business from central Birmingham to an area just outside of the city which they named Bournville. Here they built their factory in 1879 and developed a "model village" designed to counter the evils of "modern" city living. The area became home to generations of Cadbury employees along with many others. Even today, it is recognised by the Joseph Roundtree Foundation as "one of the nicest places to live in Britain".

The company and the family worked to improve working conditions in their own factories and across England. Their social activism, tied to their Quaker values, manifested itself in the anti-slavery movement, campaigns for better housing, sanitation and inner city smoke abatement. They pioneered many employee benefits that are commonplace today and built their success on a loyal workforce and community support. So it is no surprise that many employees and community members see the bid by Kraft as a threat to their extended family and the survival of an iconic family business.

Ironically, it is the stories of two other iconic family businesses that may write the end to the Cadbury story. For a brief time after the separation of Cadbury Schweppes, Cadbury enjoyed a position as the world's largest confectioner. Rumours quickly began to circulate that the licensing agreement with Hershey would lead to a merger of confectioners across the Atlantic. However, Hershey's own family roots have resulted in restrictions that make such a combination difficult, if not impossible.

Even as Cadbury emerged as a giant in the confectionary industry, one of the largest family companies in the US, Mars, developed a strategy to become the dominant player in the confectionary business. Through its 2008 deal to purchase Wrigley's, Mars has become the largest, and many feel most powerful, player in this rapidly consolidating industry. 

It is widely believed that this move by the Mars family of Virginia is the real motivation behind the Kraft offer and that the limited options presented by the Hershey Trust may seal the fate of Cadbury. The future of an entire industry is being influenced by the stories of these great families and the businesses they created.

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