Cadbury boss calls for curbs on hedge funds

Date: Wednesday, February 10, 2010
Author: Helen Power, Patrick Hosking and Catherine Boyle, Times Online

Roger Carr, the outgoing chairman of Cadbury, called last night for action to curb the influence of hedge funds during hostile takeover bids.

He believes that the funds, which amassed a 30 per cent stake in Cadbury as it was fighting a bid from Kraft, effectively handed the company over to the American food group.

In a speech to the Saïd Business School, part of the University of Oxford, Mr Carr argued that City takeover rules should be changed to require a minimum of 60 per cent of shareholders to approve a takeover, rather than the present 50.1 per cent. This, he said, would reduce the influence of hedge funds that had bought in merely to force a deal through.

However, City experts said that such a change would not work because shareholders would have the right to remove a board with 50 per cent of the vote, allowing new directors to be appointed, who could then recommend a takeover.

In an even more radical proposal, Mr Carr argued that hedge fund speculators should be banned from voting through hostile takeover bids.

During the Cadbury takeover battle, arbitrage funds hoping to make a quick profit increased their holdings from 5 per cent to 31 per cent.

“It may be unreasonable that a few individuals with weeks of share ownership can determine the lifetime destiny of many,” Mr Carr said.

His comments echo those of Lord Mandelson, the Business Secretary, who called institutional investors to a meeting last month to urge them to embrace “long-termism” when making decisions about their investments during takeover battles.

Robert Hingley, director-general of the Takeover Panel, said: “We do review things continuously and I have a high respect for Roger Carr. However, the risk is that his proposals might make hostile takeovers impossible in all circumstances. Do we really want that?”

Mr Hingley said that the principle of “one share, one vote” was deeply rooted in the UK and to abandon it might have unexpected consequences.

Mr Carr also asked the Government urgently to consider whether a more protectionist policy was needed to shield large British businesses from foreign predators.

The Cadbury chairman revealed that advisory fees on both sides of the battle had hit £400 million, including the cost to Kraft of raising funding for the bid.

Kraft confirmed yesterday that nearly 400 Cadbury workers would lose their jobs at the Somerdale factory, near Bristol, which will close by the end of the year. Workers had hoped that they could keep their jobs after Kraft said that it thought it could keep the factory open. Todd Stitzer, chief executive of Cadbury, who will leave within weeks, received £4.6 million through dealings in the company’s shares on Monday.