US: Cadbury Schweppes to demerge US drinks business

Cadbury Schweppes plans to demerge its North American beverage business, having failed to find a suitable buyer for the operation.

Sir John Sunderland, chairman said: "With an acceptable sale unlikely in the foreseeable future, the board believes it is prudent now to focus on demerging our Americas Beverages business."

The UK-based company said in its first-half trading update today (10 October), that its drinks unit, Cadbury Schweppes Americas Beverages, will become an independent company. The company added that it felt it was in the best interest of shareowners to list the business on the New York Stock Exchange through an issue of shares to existing shareowners. The move will be subject to a number of approvals and rulings and will not be completed before the second quarter of 2008.

Cadbury Schweppes has been on a seven-month search for a potential suitor for the US drinks business but in July it said it was delaying the sales process, due to the "extreme volatility" of the debt markets.

"Since that time, debt market conditions have remained difficult. While the board continues to be committed to the principle of maximising shareowner value, it does not believe current market conditions will facilitate an acceptable sale process in the foreseeable future. Accordingly, our focus is now on demerging our Americas Beverages business," the company said.

The company said that it faced a difficult quarter for the US beverage market and its revenues reflected this and were ahead by just 3% on a like-for-like basis. With share gains from Sunkist, A&W and Canada Dry the company claimed it has offset declines in brands such as Dr Pepper and 7up.

In non-carbonates, business performance was boosted by Snapple but the company admitted that the recent launch of its sports drink, Accelerade, was "significantly behind expectations".

Ahead of a demerger, the company also said today that it was announcing a further simplification of its Americas Beverages organisation which will result in a reduction of 470 employees. The restructuring programme will cost around £35m with the majority of the £35m annual cost savings expected to be delivered in 2008.

"In addition to creating a stronger and more efficient organisation, the programme is expected to largely offset the anticipated impact of the loss of the Glaceau brand distribution and further rises in the cost of key commodities," a statement said.

Last month, Cadbury Schweppes would not comment on reports that it had rejected a bid from a consortium of Blackstone Group, KKR and Lion capital in the region of GBP6.4bn (US$12.87bn) and GBP6.9bn.