A lesson from Lehman as Kraft courts Cadbury

I knew what he meant. Lehman did not just go down - it sent in train a sequence of events that on their own were bad enough but collectively were exhausting.

So much has happened that the sight of the bankers leaving the Lehman building at 25 Bank Street at Canary Wharf, lugging their cases of wine and boxes of belongings, really does seem far further back than only 12 months. We went on a roller-coaster ride in which just when we thought the end was in sight and the last lurch of the stomach had been completed, another one loomed.

But now, after a period of calm, we really do think it's all over. I want to shout it's too soon! That in order to absorb the lessons of Lehman, we need to suffer some more - not much but for longer than a year. But that would be to cast me in the role of doomsayer.

So I'll stick instead to the belief that while the recovery - in the markets and in consumer confidence - is of course welcome, I do wish that before we get carried away, we pause and reflect. Lehman went down because of hubris. Nothing else.

I could smell it when I went there: in the way there were posters proclaiming how smart its people were; how they were chasing volume, to the extent they were able to boast they were the largest player on the London Stock Exchange; and their claim to be developing relationships with the very biggest financial and corporate players.

A year on, what has changed? Lehman has gone, certainly, but has the mindset that pervaded that organisation and others like it? Because that is the point of Lehman's demise. Yes, it was driven over the edge by Dick Fuld but there were plenty of bankers who, when it went down, crossed themselves and muttered "there but for the grace of God". That was where the shock lay - that one of their own could disappear so spectacularly.

Was Lehman any different from the rest in the way it conducted its business? Not really. Were its staff a breed apart? Not at all.

I thought there had been a shift until last week. I really wanted to believe there was a new spirit of humility afoot. I really did. Then Kraft made its play for Cadbury.

Suddenly, the demons returned. Kraft should take over Cadbury because it can produce savings of $625 million (£381 million) a year. That means many Cadbury employees can look forward to losing their jobs.

In order to get to this figure, Kraft is prepared to spend £4 billion in cash plus equity, making its total offer worth £10 billion. It's happy, apparently, to see its advisers walk away with £150 million in fees. The US food behemoth thinks nothing of the uncertainty and worry it spreads among Cadbury staff, the company's suppliers and wholesale customers; the distraction of senior management as they fight the bid; and of course, the bill, which on the Cadbury side will be £100 million.

I wouldn't mind if I thought Cadbury was badly run and would benefit from being absorbed into Kraft. But there is no reason why that should be so. It will make Kraft's bosses look good. They will show themselves to be expansionist and on a growth track, to use the sort of phrase the City loves to trot out on occasions like this. And their advisers will be a lot richer.

But can they honestly say it is to anyone's advantage? What they do maintain is that biggest is best. It's not.

And for proof, they should take a long look at the groaning edifice that is 25 Bank Street at Canary Wharf, once the proud home of Lehman Brothers International.

...and the legendary banker to ensure the deal succeeds

Kraft's assault on Cadbury is being led by Bruce Wasserstein, the Lazards chief and legendary New York banker.

For once the description is not misplaced. I love the line in William Cohan's book The Last Tycoons, The Secret History Of Lazard Frères & Co, about Wasserstein's decisiveness when splitting from his second wife: "He's just not a person who tolerates being unhappy."

Wasserstein started collecting art. Said a friend: "Art is just another acquisition for Bruce. It is totally the Charlie the Tuna syndrome — I'm a rich guy, I gotta have class. I gotta have art'."

Wasserstein's nickname is Bid 'em Up Bruce. It was a headline in Forbes magazine in 1989, and it referred to his penchant for persuading clients to go to ever greater limits to secure victory.

He would push the company onwards, normally through a "Dare to Be Great" speech. And he would ensure the Press was on his side. "In building this imposing image as a powerful friend and a dangerous enemy," wrote Forbes, "Wasserstein has been positively brilliant in manipulating newspaper reporters." (Something to look out for as Kraft v Cadbury develops).

Forbes went on to question the wisdom of the Wasserstein approach. "Who will be to blame, then, if some of today's mega-billion-dollar mergers and acquisitions end in disaster? Wasserstein and his ilk? Or the corporate boards and corporate brass who let dreams of glory separate them from hardheaded reality?" But, as Forbes acknowledged, "the ultimate responsibility lies with the clients." However, that was 1989.

Since then, investment bankers have grown in stature and wealth. Certainly, they often come across as smarter and are personally richer than the corporate executive who now hangs off their every word — to the extent that the traditional master-servant relationship no longer applies.
The clients may have the final say but it would foolish to suppose they're in charge.

We could take M-way route out of deficit

Selling off the entire motorway network was floated as an idea in summer — but then disappeared from view. Which is a pity.
It would be entirely green (tolls would force drivers to confront the costs of a journey more).

And it would raise the considerable matter of £100 billion and get the Government out of a deep hole on public spending.

But if the Tories are to adopt it, assuming they form the next administration, they must make sure that it is not like the sale of BT, gas and electricity where the proceeds were just frittered away in tax cuts. Any money raised should be accompanied by hefty cuts in public spending, so that only then will the markets be convinced that there is a long-term plan to bring deficit into balance and the UK Government means business.

Recession smokescreen

Things that stand out from this recession. There have been very few nasty shocks, apart from the banks. Every large company that has gone to the wall was already known to be fragile. There's not been a bankruptcy that has caused people to stop in their tracks.

And a substantial number of the reported job losses were not so much the result of the slump but employers taking the opportunity to restructure — to close inefficient plants and to exploit better ways of operating via outsourcing and the implemetation of new IT systems for example — and to hide the redundancies under the cover of the downturn.