Though Cowards Flinch

In February, food giant Kraft completed a £11.6bn hostile takeover of Cadbury.  Almost immediately it broke its first promise to keep the factory at Keynsham open.

Not content with that insult, they are now threatening to freeze the pay of 3,600 staff for three years unless they ‘voluntarily’ give up their final salary pension scheme in favour of one with much lower pension benefits.

The reason Kraft is threatening staff like this is because, in the original Cadbury’s Trust Deed, there is a clause which stops them simply bringing the scheme to an end unilaterally. The clause stops Kraft from changing benefits to members in any way that is “unfair or materially detrimental” in the opinion of the scheme actuary.

It would appear that Kraft were not aware of this Trust clause until after the sale of Cadbury’s had taken place.

As far as my meagre legal reasoning will take me, this raises two possibilities.

First, if Directors of Cadbury’s were aware of this Trust provision but did not disclose it to Kraft, but then went on to benefit from share sales at the point of takeover, then they are arguably in breach of the Insider Dealing legislation set out in the Criminal Justice Act 1993, whereby

 An individual who has information as an insider is guilty of insider dealing if, in the circumstances mentioned in subsection (3) [the acquisition or disposal in question occurs on a regulated market], he deals in securities that are price-affected securities in relation to the information.

In this case, the ‘information’ consists of knowledge, not in the public domain, of the Trust provisions on pensions, the keeping secret of which may have led  these Director shareholders to gain a higher share price than they would otherwise have done; conversely, had the pension provision clause been publicly known, Cadbury’s would have been seen as less valuable in the market, and may never have been sold.

Second, unless the Directors of Cadbury’s deliberately concealed this aspect of the Trust’s provisions (see 1 above), the Directors of Kraft must surely have been negligent in their due diligence scrutiny of Cadbury’s affairs before the sale, and have thereby allowed for a higher share price on sale than should have been the case. 

Indeed, had the information been made available, the purchase of Cadbury’s might not have been made, because it may not have been deemed in shareholder interest. 

The directors are therefore potentially therefore open to legal action for their negligence from those shareholders.

Logically, one or the other of these possibilities must hold water; there has either been lack of due disclosure of information, or negligence in not obtaining/using that information. 

Of course, actions against either set of Directors will never happen, because bullying the workers into submission is an easier option.