Canadian Vending

Cadbury Schweppes Plans Spinoff

March 6, 2008
By Canadian Vending

Cadbury Schweppes PLC appeared to end months of speculation about the
future of its U.S. beverage business, announcing in mid-October it
would spin off the maker of Snapple and Dr Pepper rather than sell it.

Cadbury Schweppes PLC appeared to end months of speculation about the future of its U.S. beverage business, announcing in mid-October it would spin off the maker of Snapple and Dr Pepper rather than sell it.

Cadbury said it would issue shares to its own shareholders and list the business on the New York Stock Exchange after faltering credit markets made a sale difficult.

However, chief executive officer Todd Stitzer left the door open a crack to a potential sale should debt markets improve.


“I think anything is possible in today’s financial world,” he told reporters.

Possible buyers were believed to include private equity groups and Canadian-based Cott Corp., a Toronto pop producer, which makes private-label soft drinks for retailers in Canada, the United States and Great Britain.

Stitzer said that while a sale would have been closed “quickly and cleanly” and allowed for a large return of cash to shareholders, a spinoff “provides roughly the same amount of value.” He did not disclose terms.

Cadbury said it did not expect to complete the separation before the second quarter of 2008.

The future of the U.S. drinks business has been up in the air since earlier this year, when Cadbury came under pressure from investors led by U.S. billionaire Nelson Peltz to separate its beverage and candy arms.

The company subsequently announced a “twin-track” process in March to determine whether to sell or spin off the unit, which generates more than 80 per cent of its revenues and profits in the United States.

It had been leaning toward a sale but indicated in August that a spinoff was the more likely option because of turbulent debt markets.

“With an acceptable sale unlikely in the foreseeable future, the board believes it is prudent now to focus on de-merging our Americas Beverages business,” chairman John Sunderland said.

The American beverage business will be led by Larry Young, currently CEO of the bottling operation and formerly president and chief operating officer of Pepsi-Cola General Bottlers. John Stewart will be chief financial officer.

The restructuring will lead to 470 job losses, the company said.

The company has yet to decide on a name for the drinks arm, but Stitzer said it would not be Schweppes.
Analysts suggested that listing the business in New York could present problems for British shareholders.

Hanna said the company would be giving presentations to U.S. analysts in the coming months, adding he anticipated a market for the shares should British investors want to dispose of their stake in the U.S.-listed company.
Beverage Digest editor John Sicher said he expects that once the spinoff is complete, Cadbury could begin making small- and medium-size acquisitions of its own.

He said antitrust concerns made it unlikely that America’s two biggest soft drink companies, The Coca-Cola Co. and PepsiCo Inc., could buy Cadbury’s beverage business.

Stitzer declined to comment on a Wall Street Journal report that said representatives of Hershey Trust, the charitable group that controls The Hershey Co., met with Cadbury in early September to discuss a merger.

Analysts have speculated that Hershey Co., America’s largest candymaker, wants to buy some or all of Cadbury’s chocolate and gum lines. In April, Stitzer said that a combination of some of the two companies’ businesses would make sense.

On another potential deal, Stitzer said that Cadbury had no interest in buying Godiva, the premium chocolate business of Campbell Soup Co. and would instead concentrate on expanding its own Green & Black’s premium brand.

“We’ve got no plans to acquire smaller premium brands at this point,” he said.

Campbell has been divesting non-core units and last month confirmed it is exploring the possible sale of its Godiva chocolate brand.

The decision to spin off the drinks business leaves Cadbury to focus on increasing sales and margins of Dairy Milk chocolate and Trident gum.

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