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Wall Street Journal

January 27th, 2010

World News: Foreign Takeovers Take a Toll in U.K.

Kraft's Acquisition of Cadbury Feeds Discontent That Nation Is Losing Locally Controlled Industries

Crossing Borders

Foreign takeovers in the U.K. amount to more than those in Japan and Germany, two larger economies.

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In early 2005, Kraft Foods Inc. brushed off rumors that it would close the U.K. factory that came with its 1993 acquisition of British chocolate maker Terry's of York.

At a lunch for retired workers, recalls David Meeks, a third-generation Terry's employee, a Kraft executive assured the gathering: "We'll be here forevermore."

Months later Kraft announced it was moving all of Terry's production abroad, ending a chocolate business that began in 1823.

As Kraft makes similar assurances to workers at Cadbury PLC, the nearly 200-year-old British confectionary it agreed to buy last week, politicians and the public here are increasingly questioning a once-accepted wisdom in this country: Britain's openness to foreign takeovers is a good thing.

The growing discontent is the result of a years-long stretch that leaves Britain with a dwindling list of major companies to call its own. The open-markets boom ended in a historic recession, and whole segments of U.K. commerce are now run from abroad.

With Cadbury gone, the country that eats more chocolate per person than almost any other no longer has a major candy maker. Nor does it have a major car maker, and most of its investment banks are foreign-owned. Its steel and chemicals industries and water and electricity utilities are mainly foreign-owned, and almost all of its ports and airports are managed from abroad.

In Parliament, "there is a increasing level of wondering if it is going too far, " said Vera Baird, a member of Parliament for the ruling Labour Party.

The darkening mood has the public looking back at the promises that came with other takeovers.

Kraft, for example, says it made the decision to relocate Terry's production abroad after its original plan to expand the business beyond the U.K. didn't prove as successful as hoped.

Some takeovers have boosted U.K. companies and industries. General Electric Co., for example, moved the global headquarters of its sprawling health-care business to Amersham, in Buckinghamshire, after it bought the British medical diagnostic and bioscience company of the same name for about $9.5 billion in 2003. GE employs about 20,000 people in the U.K. across all four of its major business lines.

Many U.K. companies bolstered themselves through foreign acquisitions. In 1995, for example, brewer Scottish & Newcastle picked up businesses from Finland to Australia.

Then in 2008, the 250-year-old business was bought and carved up by Denmark's Carlsberg AS and Heineken of the Netherlands. Since then, S&N's U.K. work force has been shrunk to 3,500 from 4,200, and corporate heads of department, from research and development to marketing, are based in Amsterdam.

In October, Heineken said it was moving production of S&N's Newcastle Brown Ale away from Newcastle, the northern English city whose symbols had adorned its bottles.

Jim Merrington, a former director who had worked on many of S&N's takeovers, got calls from former brewery management bemoaning the "final stroke" for a company that had been integral to its region.

"Those of us who spent 30 years working for S&N were left scratching our heads and wondering, what was it all about in the first place," he said.

The loss of corporate headquarters is a key concern for critics, who say it makes it harder for locals to compete for top managerial positions and to influence the company.

When Japan Tobacco Inc. bought British rival Gallaher Group PLC in 2007, the U.K. didn't even hang on to the Japanese company's European head office, which went to Geneva.

While European countries frequently block foreign takeovers and whole sectors of industry in the U.S. and emerging markets such as China and India are protected, almost everything in Britain is fair game.