ANALYSIS - Cadbury Schweppes - Drinks in the sun
The announcement that Cadbury Schweppes is looking to split its beverage operations in the US from its confectionery unit may be music to its investors' ears, but where will a potential buyer come from? Dean Best looks at the move, and weighs up what the coming year has in store for Cadbury Schweppes.
The separation of Cadbury Schweppes' drinks and confectionery businesses is a move the company's management has been mulling for months - it's also a step that investors have been demanding for just as long.
In the last year, the UK-based group has offloaded its European drinks assets and looked to gain greater control of the distribution of its products in the US through a series of bottler acquisitions. The strategy seemed to be to build a drinks business capable of standing on its own two feet, something that investors were eager for, especially given the unit's strong financial performance.
Last year, Cadbury's Americas Beverages division, which has operations in the US, Canada and Mexico, posted revenues of GBP2.6bn (US$5bn) - up from GBP1.8bn in 2005 - from group sales of GBP7.4bn. Indeed, sales from Cadbury's Americas Beverages business were almost double that of its confectionery operations in the region.
Furthermore, the business also generated profits of GBP562m out of group earnings of GBP909m, as Cadbury gained share in the US carbonates market from Coca-Cola Co. and PepsiCo for the third successive year.
In sum, investors see Cadbury's drinks as the buoyant side of the company and believe growth would be easier won from both sides of the business if they went their separate ways. One investor in particular, US investor Nelson Peltz, seems to have been the catalyst for the announcement yesterday (14 March). His move to buy just under 3% of Cadbury sparked a flurry of speculation about the future of the business - and prompted the Cadbury board to show its hand.
Now, the talk in the market will turn to who will be interested in buying Cadbury's drinks business in the Americas. The division, which sells brands including Dr. Pepper, 7-Up and Snapple, may be in good health but still lags far behind Coca-Cola Co. and PepsiCo in terms of market share in the US.
Moreover, despite Cadbury's moves to consolidate its bottling network in the US, it still only controls 40% of its drinks volumes. What's more, Cadbury's two key brands, Dr Pepper and 7-Up, may face problems in the US due to the trend away from carbonates to healthier, more functional beverages. Cadbury's two bigger rivals have been far more active in these categories.
Martin Deboo, an analyst at UK bank Investec, believes the keener bidders will come from the cash-laden private equity sector. "The likely end-game is that the Americas Beverages business will be disposed of, most likely to private equity groups," he told just-drinks.
Deboo added: "A trade buyer is less likely than private equity but other buyers could potentially be an American brewing business that wants to add a soft drinks business. However, it would be an odd strategy for a trade buyer to buy into a number three position in the market behind Coke and Pepsi."
Cadbury said it would shed more light on its plans in June. One thing it did reveal, however, is that it will not sell off its drinks business in Australia. The company told just-drinks that its Australian beverage arm is "very integrated" with its confectionery business and that the two divisions would be kept together Down Under.
Until the summer, then, it seems there is plenty about the gum, chocolate and carbonates maker for the market to chew over.
The announcement that Cadbury Schweppes is looking to split its beverage operations in the US from its confectionery unit may be music to its investors' ears, but where will a potential buyer come fro...
Cadbury Schweppes has remained silent on reports that it has turned down a second offer for its US drinks business....
PepsiCo and Unilever have announced a major expansion of their Lipton RTD tea business joint venture....
The Coca-Cola Co. has fallen out with a number of smaller Glaceau Vitaminwater distributors over its plans to put 65% of its sales through its own distribution networks across the US, according to rep...
The Coca-Cola Co. has lined up an addition to its Odwalla juice brand in the US....
The marketing director of PepsiCo UK's juice brands has left the unit....
The Coca-Cola Co. has stayed silent on reports that it has had a takeover bid for German soft drinks company Bionade rejected....
PepsiCo spent US$500,000 on lobbying politicians in the US in the first half of this year....
- Most Valuable Spirits Brands in 2017 - The facts
- Most Valuable Beer Brands in 2017 - The facts
- Diageo Africa president O'Keeffe on beer & spirits
- Travel Retail needs a disruptor - Comment
- What the future looks like for Australian wine
- Diageo ready to lock horns with AB InBev in Africa
- Heineken sees Tesco pull SKUs in UK
- Coca-Cola Co announces senior executive shake-up
- Fever-Tree eyes bumper NPD, pack formats for 2017
- Heineken mulls M&A with $1.75bn notes issue
- Central and East Europe Report Package
- Battle of the Generations - The fight for iGen, Millennial, Gen X and Baby Boomer consumers
- Global vodka insights - market forecasts, product innovation and consumer trends
- Global Scotch insights - market forecasts, product innovation and consumer trends
- Global liqueurs insights - market forecasts, product innovation and consumer trends research