Afternoon:
9°c
In the endless comment about how the world has changed since Lehman, the aspect that gets too little attention is not simply how the balance of power in the world has shifted to China — and to a lesser extent to the resource-rich nations of the Middle East — but how this heralds a new kind of capitalism to which the Western world may find it difficult to adjust.
Capitalism in the West has always been firmly identified with free markets, the rule of law, open access, personal freedom and democracy. The rule of law is a moveable feast in many of the newly rich countries. Although China has sought to develop a legal framework that will encourage Western firms to invest and do business there, it is currently engaged in a serious if low-profile purge of those lawyers who seek to use these laws to assert their rights or their clients' rights against the interests of state.
More overtly, the Chinese government has recently caused alarm in the investment banking world by encouraging state-run companies in their efforts to duck out of the huge losses many have incurred in derivatives trading. Air China, for example, lost $1.1 billion on derivative bets on the oil price last year, but it was just one of several.
What has not happened is that an official body, the State-owned Assets Supervision and Administration Commission of the State Council — more easily known as Sasac — has given its backing to companies looking for legal loopholes to avoid having to pay. It said it would help them find ways to “minimise losses”.
As a Beijing Westerner told the Financial Times: “Stuffing the foreigners in the pursuit of domestic policy goals is a time-honoured practice here.” But given that Beijing holds so many of the cards as the world rebalances after the crash, we are going to have to find ways to deal with this.
Crunching the Cadbury numbers
After the initial flurry of hostilities, the attempt by American food giant Kraft to take over Cadbury has gone into one of the periodic lulls typical of takeover battles.
This absence of news does, however, give one a chance to reflect on some of the figures bandied about in the early skirmishes. First is the suggestion that Kraft has identified £300 million of cost savings it thinks it could achieve by combining the two businesses. However, it has also been suggested that a bid of this size would generate fees for the investment bankers advising Kraft of around £150 million, while the defence costs for Cadbury are roughed out at £100 million.
There must be some uncertainty as to whether the cost savings of £300 million will ever be achieved, though it will be highly disruptive as well as painful to those on the receiving end when the time comes to deliver them. The fees to the bankers in contrast are certain. Surely, if reducing cost is the point of the exercise, it would be far easier simply to abandon the bid.
That would mean a guaranteed saving of £250 million against an uncertain £300 million — with no pain to anyone, other than the bankers.
One further reflection. Years ago, Cadbury decided it had such good relations with its retailers that it would push other products down the same distribution channel, just as Kraft is now suggesting it will do.
Accordingly, Cadbury owned Typhoo tea for a time, and more relevantly it developed Cadbury's chocolate fingers and Cadbury's Drinking Chocolate. But the confectionery distribution channel did not want these other brands, the idea was abandoned and the products became part of the management buyout from which Sir Paul Judge made his fortune.
The question in this for Kraft is why we should believe that a strategy that did not work last time will work this time — given that the definition of madness is to keep doing the same thing while expecting the outcome to
be different.
Channel Four's man of vision
Today is the day the annual media beanfeast gets under way in Cambridge — when industry executives, advertisers, analysts, government ministers, civil servants, PR men and investment bankers meet to gossip, plan deals and stick knives into each other's backs.
So what better stage could there be, should he choose to use it, for Channel Four chief executive Andy Duncan to confirm the rumours, which have been circulating for some weeks now, that he is about to quit.
His is a loss the industry can ill afford because in a business not known for the quality of its management, he was one of the good guys. Within the tight brief of managing a public-service broadcaster, he increased advertising market share and boosted revenues. He also understood more quickly than most how digital would change
the game.
What he did not have was an insatiable appetite for boardroom politics, which in an industry noted for its dysfunctional boards, meant his back was always likely to become a target.
