Cadbury's reorganisation
Cadbury Schweppes鈥檚 reorganisation and job cuts - which - show the all-pervading influence of private equity.
Why?
Because the sweets and beverage business is doing to itself what a private equity owner would do.
It is making itself more efficient through a 15 per cent reduction in headcount and a similar reduction in the number of places it makes confectionery.
That means around 7,500 jobs will go around the world over four years and ten confectionery sites will close 鈥 though Bourneville, as the company鈥檚 home-sweet-home, is likely to be largely unaffected.
The reorganisation will cost it around 拢450m in a one-off charge.
But Cadbury is hoping to reap a very substantial increase in its profit margins, perhaps as much as 40 per cent or 50 per cent.
However Cadbury's story is about more than cost cutting.
It is already the world's biggest confectionery company - and it believes it can become a lot bigger, by investing in developing markets and by manufacturing healthier and ritzier products for richer consumers.
Cadbury, which is dropping the 鈥淪chweppes鈥 from its moniker, has also confirmed that a sale of its huge US drinks business - which makes Dr Pepper and Seven Up - is more likely than a stock market listing.
That could raise more than 拢7bn. And the bidders for the drinks operation are - of course - private equity funds.
So what's the overall message from Cadbury today? It's "do unto thyself before private equity does it to you."
And here's what should cheer up Cadbury's shareholders and the millions of people who have a stake in it through their pension funds: the profits from this sweeping reorganisation should accrue to them, rather going to the partners in private equity firms and the investors in their funds.
UPDATE 1600: In response to those who say that the same pension funds invest in FTSE 100 companies and in private equity, actually that鈥檚 not quite right. The vast bulk of cash going into the largest UK-based private equity funds comes from giant overseas pension funds, especially US ones, such as .
All the statistics show that UK pension funds remain under-invested in private equity 鈥 although they are putting more money into these and other alternative assets. So when private equity buys British businesses, that represents a distribution of assets and potential returns away from British pensioners to overseas pensioners.
By the way, if you click here, you can watch an interview I did this morning with Todd Stitzer, the chief executive of Cadbury.
I'm 
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An excellent article that shows that private equity is part of the mechanism by which the market delivers value.
Incidentally - why do you think that if private equity bought Cadbury's sweets business, millions of people through their pensions funds would not benefit? After all the same pensions funds that millions of ordinary people are invested in - and which own cadbury's are the same as the pensions funds invested in the private equity firms
Robert,
A great piece as always, but I feel duty bound to point out what I assume is an error and not the 主播大秀's in built left-leaning bias in your last paragraph.
The majority of investors in private equity are the very pension funds you refer to!
Adam
tomo, adam,
Surely Robert's point is that by Cadbury becoming more efficient in the way that a PE investor would suggest, us pensioners can avoid having to pay a 'cut' of the resulting profits to a middle man working in PE.
I agree that PE investors are a mechanism for ensuring the market delivers, but aren't they're awfully expensive for what they do? By the way, isn't it strange how the most profitable bits of the UK economy are the most regulated / restricted - where consumers have least (real) choice?
If more companies had the guts to do what Cadbury are doing, the whole country would be better off. We need decent management who (a) can make tough decisions when needed (b) understand the benefit of investing for the medium-longer term. If businesses don't have this, they're likely to fail, and getting a PE house to indirectly sort it out for the pension fund holders is a lot more expensive than getting decent management in on some good quality share option terms.
It seems to me Cadburry Schwepps could effect greater economies by consolidating its products so that they are fewer in number. How about instead of producing chocolates and soda water, it just produced chocolate soda, taking the bitter with the sweet. :-)
By the way, what ever became of "Shweppevescence?" Another victim of cost cutting I suppose. I wonder how gin and chocolated tonic water would be...Yuck?
Great news then. 7500 on the dole, with the heartache and problems this creates for individuals and groups. But never mind!!! Shareholders will make more profit.
I don't see the influence of the PE brigade here.
Any sensible management team continually monitors its business and makes changes as when they are needed. Cadbury has already revised a number of its products and is simply following through on that process by improving the efficiency of its manufacturing arrangements.
All normal business practice but at least this way the managers won't be loading up the company with debt which any PE company would certainly have done and in doing so restricted Cadbury's abilility to invest in new product development.
A ballys move by Cadburys & a very good Beeb article & commentary by Robert Preston.
The reworked old adage truly applies 鈥
鈥渄o unto yourself what others would be prepared to do to you鈥
Good Luck to Them
To any serious observer of corporate positioning, this proactive move by Cadburys has obviously been long time in the making (pre Nelson Peltz & his unwanted advances).
Others would do as well to safeguard themselves & their futures from the roving interest & ravages of vulture capital .. sorry Private Equity :)
vikingar
Robert where exactly are these statistics that you cliam show that UK pensions pensions are underinvested in PE?
I think I know a lot about these statistics and I have never seen the statistics you cliam as fact. Justify please
My advice to UK consumers is to take your purchase decisions to a higher level and choose not to purchase their products. Along with all the other companies whose concerns over shareholders returns are of more concern then the local workforce and communities they elect to short change.
The british unions, with their current campaign against PE firms, seem to want to live in a cosy cocoon. Do they not realise that with the global market place if these challenges are not met and changes made it will not be just 7500 jobs but probably substantially more. Where will the spend on schools'n'hospitals come from then ?
Or perhaps they really do believe the world owes us a living.