U.S. News

Cadbury to Split Between Candy and Drinks


Britain's Cadbury Schweppes said it planned to split its confectionery and American drinks businesses, sending its shares higher, but analysts said it will make both more vulnerable to predators.

Cadbury, the world's largest confectionery maker, said the move will help unlock value for shareholders and comes after it received support for the split from over 40% of its shareholders in meetings with them over the last month.

Chief Executive Todd Stitzer said the decision was taken at a board meeting on Wednesday, and the choice of either a demerger or the sale of the drinks unit will be taken in June.

"This split has been under consideration for some time and is the culmination of our strategy to maximise shareholder value," Stitzer said in an interview. He had said only last October that the group had no plans for a demerger.

Cadbury shares rose 4.2% to 627 pence by 0950 GMT to be the FTSE 100 index's second biggest gainer, valuing the group at around 13.2 billion pounds ($25.4 billion).

"This is good news, it's better to operate the businesses separately," said analyst Rob Mann at Collins Stewart.

The core confectionery side will contain Dairy Milk chocolate and Trident chewing gum, while the soft drinks side will own the Dr Pepper and Snapple brands. Further details on the split will come with the group's trading update on June 19.

Cadbury disclosed on Tuesday that U.S. activist investor Nelson Peltz had taken a 2.98% stake. Analysts said at the time that Peltz would urge Cadbury to split in the same way he had pressured other groups into change.

"It appears that Peltz has brought forward a decision that had been under review for quite a while," said one analyst.

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Analysts said private equity groups like Lion Capital and Blackstone might now bid for the soft drinks side while Kraft Foods, Hershey and even Wm. WrigleyJr. could be interested in confectionery.

They added the confectionery side could be worth around 9 billion pounds when put on a similar rating to focused sweets groups Hershey and Wrigley, while the soft drinks side may be worth 7 billion pounds on its own, depending on how Cadbury allocates its 2.5 billion pounds of debt.

Reuters Estimates say Cadbury's shares trade 18.1 times 2007 forecast earnings compared to Hershey's 21 and Wrigley's 23. Cadbury's shares have underperformed its food peers in 2006 due largely to a British salmonella-related chocolate recall and a Nigerian accounting scandal, but its prospects have improved in 2007 as it looks to introduce many new products.

Stitzer said the company met with its major shareholders, include Peltz, after last month's annual results and said they were positive about the group's plans for separation.

Peltz's Trian Fund built up a 5.5% stake in U.S. food group H.J. Heinz last year. He pressured the company to give his fund two seats on the board and pushed through changes which have boosted the share price.

Cadbury became the world's biggest confectionery group when it bought the U.S. Adams chewing gum business in 2003 for $4.2 billion, but since 1999 has been selling off its non-core soft drinks with Lion and Blackstone buying its continental European business for 1.85 billion euros in February 2006.

The company traces its origins back to 1783 when Jacob Schweppe perfected his process for manufacturing carbonated mineral water in Switzerland, while in 1824 John Cadbury opened in Britain selling cocoa and chocolate. The two household names merged in 1969 to form Cadbury Schweppes.