Pictured above: Professor David Bailey from Coventry University Business School

A business expert at Coventry University says there is little strategic fit between Kraft and Cadbury and that the deal risks overstretching Kraft in terms of both the debt it is taking on to finance the bid and the vast portfolio of activities it would build up.  

Professor David Bailey from the University's Business School said: "With such muddled 'strategic' thinking, the chances of this succeeding and delivering real benefits for both sets of shareholders are remote - even before we consider the wider impact on workers, suppliers, and the environment".

He was speaking after it emerged at the weekend that Kraft had posted its official offer document to Cadbury shareholders.

Professor Bailey, who has been following the takeover saga, said: "Kraft is a 'slow growth conglomerate' and although Kraft state that the proposed takeover would create a significant growth opportunity for both businesses, they will need to look for upwards of £625 million in cost savings to justify the takeover, with up to £1 billion being needed if it ups its offer in response to any rival bids. That will mean cuts somewhere."

Cadbury's share price has risen of late on the back of hopes of a higher Kraft offer, given that there is possible interest from Hershey, Ferrero and Nestle (perhaps even combined in some way). Such a counter offer has yet to materialise, though, and the Kraft bid remains the only offer on the table to Cadbury shareholders.

Professor Bailey added: "If you look at the history of takeover bids, the overwhelming evidence is that most takeovers fail. I think Cadbury would be better off remaining independent given that its management is doing a good job.

"We are now again witnessing a well-run British firm being the takeover target for a foreign multinational. Mainstream economists tell us that the nationality of ownership doesn't matter but they are wrong. High level functions like R&D, headquarter operations, and more general high value added manufacturing activities often remain near the home base; home really does still matter."

So a key risk of a Kraft takeover is that the firm will treat its UK operations as branch plants and will shift activities around its global operations so as to minimise costs and maximise returns for shareholders.

Professor Bailey thinks that the best options for Cadbury are to remain independent, or as a second best case, to go for a merger and a dual listing with the US firm Hirshey with which it has links. He also thinks that Lord Mandelson needs to act soon to make hostile takeovers more difficult.

He concluded: "Lord Mandelson needs to decide what the objectives of policy should be and then to act. He needs to do more to promote long term investment and planning in British firms, and indeed to protect high value activity in the UK.

"Above all, it has to be made more difficult for takeovers to take place. He could start by curbing the voting rights of speculative investors which have recently bought into shares, like the hedge funds piling into Cadbury in the hope of making a quick profit".