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Cadbury Schweppes still plans May demerger
FoodBev Media

FoodBev Media

2 April 2008

Cadbury Schweppes still plans May demerger

Assuming shareholders give their approval at the annual meeting this April, Cadbury Schweppes of the UK will cease to exist in May. Instead, the group’s vast global confectionery business will be renamed Cadbury plc and listed on the London Stock Exchange on 2 May, while its Americas beverage business will become an independent US based company listed on the New York Stock Exchange on 7 May.

Cadbury first announced it wanted to separate the two businesses in March last year. The company said both operations would function more efficiently as separate entities.

However, market observers speculated that the move had also been prompted by “activist investor” Nelson Peltz, whose Trian company owns about 4.5% of Cadbury Schweppes. Peltz is known for pressuring managements to release more profit to shareholders.

Cadbury’s first plan was to sell off the drinks business – formerly known as Cadbury Schweppes Americas Beverages (CSAB), now being rebranded as the Dr Pepper Snapple Group (DPSG) – to a private equity consortium. But that scenario had to be abandoned when the global credit crunch made it difficult if not impossible for would-be buyers to raise the necessary finance.

Analysts had expected the drinks business to sell for up to £8 billion (€10.3 billion), with more than £6 billion (€7.7 billion) being paid out to Cadbury Schweppes shareholders as a special dividend. In October, however, the group’s management said it would instead launch the division as an independent company, with shareholders receiving stock in the new business rather than a cash windfall.

In March, Cadbury finally announced its proposed timetable for the split-up. The company said it had secured $3.8 billion (€2.5 billion) in loans from five major banks – JP Morgan Chase, Bank of America, Goldman Sachs Credit Partners, Morgan Stanley and UBS – to fund the demerger and ensure the new Dr Pepper Snapple Group began life on a sound financial basis.

Even then, there were fears Cadbury Schweppes might be forced to postpone the spinoff because of the rapidly worsening economic climate. Ironically, among the first to suggest this possibility were analysts at Bear Stearns –a few days before the US bank itself went into meltdown.

Credit Suisse analysts also sounded a warning note, calculating the demerger could involve related costs as high as £1.2 billion (€1.5 billion).

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