It’s one of a declining number of UK-owned industries still left in the UK: Cadbury. However, over the past few years, mergers have become the norm and Cadbury looks set to become the next. Kraft, an American food giant, has been interested in taking over Cadbury for some time and this topic was covered on the Sloman Economics News Site at the beginning of September, when we considered Kraft’s bid of £10.2 billion. (see Cadbury: Chocolate all change). Since then Kraft shares have dropped in value and so Kraft’s current bid is now worth less: a hostile bid of £9.8 billion. This has been refused by Cadbury’s Board of Directors, calling it ‘derisory’.
From the time that Kraft’s bid was formally submitted, the stopwatch begins to tick. A 60-day period is allowed under the ‘takeover code’ which is in place to protect shareholders without resorting to a date in court. Following Kraft’s bid, Cadbury share prices immediately fell, but then began to recover as the implications became clearer. Other companies mentioned as potential rivals include Nestlé and Unilever, although, given Cadbury’s recent boost in sales, Unilever has said that it is no longer interested. So, what does the future hold for Cadbury? Will it be the latest in a long line of British companies to leave their UK owners?
Kraft’s Cadbury takeover bid will set 60-day timetabling ticking Guardian, Jill Treanor (9/11/09)
Kraft plays long game in Cadbury pursuit Reuters (9/11/09)
Cadbury rejects hostile Kraft bid BBC News (9/11/09)
Kraft facing 5pm deadline in battle for Cadbury Guardian, Julia Kollewa and Elena Moya (9/11/09)
Strong sales rise boosts Cadbury BBC News (21/10/09)
Cadbury rejects £9.8bn hostile bid from Kraft Guardian, Julia Kollewe (9/11/09)
Kraft may offer more cash in bid for Cadbury Telegraph, Amy Wilson (4/11/09)
Paulson raises Cadbury stake Guardian, Nick Fletcher(11/11/09)
Unilever rule out Cadbury bid as sales beat forecasts Telegraph, Amy Wilson (5/11/09)
Cadbury’s fight for independence BBC News, Edwin Lane (24/12/09)
Questions
- Kraft is looking to expand by taking over Cadbury. What type of takeover would you classify this as and what do you think Kraft’s motives are for this takeover bid?
- If Kraft is successful, what are the likely advantages and disadvantages for (a) consumers of Cadbury chocolate; (b) shareholders of Kraft; (c) shareholders of Cadbury; (d) competitiors?
- Cadbury has said that the £9.8bn bid was ‘derisory’. How will Kraft have decided on the price it’s willing to offer and what factors are likely to influence this?
- John Paulson has raised his stake in Cadbury by purchasing another 6.3m shares. What effect do you think this will have on Cadbury’s share price and why? Does this make the takeover by Kraft more or less likely?
- Is there a role for the Competition Commission in this possible takeover? If so, why; and if not, why not?
- Cadbury has reported a boost in sales. What effect will this have on the takeover bid from Kraft? Why has this sales boost caused Unilever to pull out?
The following video and audio podcasts look at resistance by the US oil and coal industries to measures to curb the consumption of oil and coal. Despite the clearly estabilised link between burning fossil fuels and global warming, many in the two industries reject, or at least question, the evidence. After all, it is in their commerical interests to promote the consumption of fossil fuels!
Elsewhere in the USA, interesting scientific developments are taking place to combat global warming. One measure is the production of ‘green oil’ produced from algae. Growing the algae absorbs carbon from the atmosphere.
In few areas are economic arguments so intertwined with political ones. The podcasts look at some of the issues.
Energy policy divides in the US BBC News, David Shukman (2/11/09)
America’s energy policy dilemma BBC News, David Shukman (2/11/09)
Texas takes on green energy BBC News, Roger Harrabin (1/06/09)
Ethical Man: Green revolution in Texas BBC Newsnight, Justin Rowlatt (11/3/09)
Climate plans part of wider battle over American freedom Ethical Man (Justin Rowlatt) blog (BBC) (3/11/09)
Obama urges climate change effort BBC News (3/11/09)
Al Gore on tackling global warming BBC Newsnight (4/11/09)
Al Gore on beating the ‘oil habit’ BBC Today Programme (4/11/09)
Questions
- To what extent will the free market result in a shift to greener energy sources? Why will any shifts towards greener fuels still not result in the socially or environmentally optimum use of fossil and ‘green’ fuels without government intervention?
- What policies could governments adopt to internatlise the externalities involved in burning fossil fuels?
- How suitable are cap-and-trade policies (tradable permits) for tackling global warming? What conditions are necessary for such policies to be effective?
- Why is tackling climate change politically difficult for (a) individual countries and (b) the world as a whole? How is game theory relevant to your analysis?
Economic growth is normally seen as the most important long-term macroeconomic objective. Without economic growth, so it is argued, people will be unable to achieve rising living standards. But, according to Nicholas Stern, Professor of Economics and Government at the London School of Economics, former head of the Government Economic Service, former World Bank chief economist and author of the 2006 Stern Review on the Economics of Climate Change, countries will need to reconsider making growth the goal of their societies.
Speaking to students at the People’s University of Beijing, Lord Stern warned that unless substantial cuts were made in carbon emissions, the effects of global warming would have devastating effects on people’s lives. As the Stern report stated, “Climate change will affect the basic elements of life for people around the world – access to water, food production, health, and the environment. Hundreds of millions of people could suffer hunger, water shortages and coastal flooding as the world warms.” The implications are that countries must making cutting carbon emissions a priority and must reconsider their growth strategies. In his speech he said that “Beijing should shift the economy away from heavy industry, manufacturing for exports and other high-emission activities. Instead, it should focus more on domestic consumption, service industries and low-carbon technology.”
So should countries rethink their economic objectives? Is economic growth either a necessary or sufficient condition for an increase in human welfare? Read the articles and then consider the questions below.
World must help China shift to clean growth-Stern Reuters (11/9/09)
Stern Truths: Some Parts of China Have Western-Style Emissions Wall Street Journal (11/9/09)
Stern: Rich nations will have to forget about growth to stop climate change Guardian (11/9/09)
Stern words in Beijing Hot Topic (New Zealand) (13/9/09)
Questions
- Are the objectives of economic growth and tackling gobal warming necessarily incompatible?
- What would a low carbon growth strategy look like?
- What would you include in the opportunity costs of maintaining a high growth strategy compared with switching to a lower carbon, lower growth one?
- Consider whether economic growth is (a) a necessary condition; (b) a sufficient condition for a growth in the wellbeing of the human race.
In times of recession, some companies can do well, even in industries where there are supply problems. One such example is Pacific Andes, a Hong Kong based frozen seafood firm. Many fishing companies have found times tough in an era of dwindling fish stocks and fishing quotas imposed by governments anxious to preserve stocks. The following article looks at Pacific Andes and how it has managed to prosper despite supply challenges and the global recession.
Casting a wide net The Standard (Hong Kong) (24/8/09)
Details of overfishing in the UK can be found at: EyeOverFishing
The site provides a “map of the UK fisheries system, the problems with it, and solutions that are possible today”.
Questions
- To what extent can the concept of income elasticity of demand be used to help explain why Pacific Andes has managed to prosper during the recession?
- What specific business strategies has Pacific Andes adopted and why?
- Why, if overfishing is to the detriment of the fishing indsutry, do fishing fleets still overfish many parts of the oceans? Explain why this is an example of the ‘tragedy of the commons’.
- What would you understand by an ‘optimum level of fishing’ for a particular type of fish in a particular part of the oceans? Explore whether the concept of a ‘social optimum’ in this context is the same as an ‘environmental optimum’?
The traditional macroeconomic issues are well-known: unemployment, inflation, economic growth and the balance of payments. However, the environment, and specifically climate change, have become increasingly important objectives for the global economy. Over recent months, many countries have announced new policies and measures to tackle climate change.
The costs of not tackling climate change are well-documented, but what about the costs of actually tackling it? Why is a changing climate receiving such attention and what are the economics behind this problem? The articles below consider this important issue.
Tougher climate target unveiled BBC News (16/10/08)
Brown proposes £60 billion climate fund BBC News (26/6/09)
EU says tackling climate change will cost global economy €400 billion a year Irish Times, Frank McDonald (26/6/09)
Obama makes 11th-hour climate change push Washington AFP, Ammenaul Parisse (25/6/09)
UK to outline emission cut plans BBC News (26/6/09)
What’s new in the EU: EU examines impact of climate change on jobs The Jerusalem Post, Ari Syrquin (25/6/09)
Climate change: reducing risks and costs The Chronicle Herald, Jennifer Graham (25/6/09)
Obama to regulate ‘pollutant’ CO2 BBC News (17/4/09)
Billions face climate change risk BBC News (6/5/07)
Obama vows investment in science BBC News (27/4/09)
Japan sets ‘weak’ climate target BBC News (10/6/09)
Questions
- Why is climate change an example of market failure?
- Apart from imposing limits on emissions, what other interventionist policies could be used? What are the advantages and disadvantages of each of them?
- According to the EU, the cost of tackling climate change is very high. So, why are we doing it? See if you can carry out a cost-benefit analysis!
- Why is climate change presenting a problem for insurance companies? Can it be overcome?
- Why is finance such an issue between developed and developing countries in relation to tackling climate change?
- What is the likely impact of climate changing policies on the labour market? Will we be able to adapt in the current economic crisis?