A Blackstone private equity consortium is emerging as the front-runner in the auction for Cadbury Schweppes's North American drinks unit in a deal worth up to 7.5 billion pounds ($15.2 billion), sources close to the situation said on Friday.
Blackstone Group , teamed up with fellow players Kohlberg Kravis Roberts and Lion Capital, is preparing to submit a second-round bid later this month in an auction in which a preferred bidder is hoped to be announced by end-July.
"The Blackstone consortium have financing in place and know the business well after buying Cadbury's European drinks business last year," one source said.
But with tighter credit conditions for private equity players from lending banks, the top price expected for the Dr Pepper, 7UP, Snapple and Canada Dry ginger ale business has come down to 7.5 billion pounds from 8.0 billion, the sources added.
They said second-round bids should be submitted in the next week or so and the aim is to have a preferred bidder named by the time of Cadbury's first-half results on August 1, although the sell-off timetable remains flexible.
The auction process is boiling down to a two-horse race between the Blackstone consortium and a rival private equity bidding group including Bain Capital Partners, Thomas H. Lee Partners and TPG, the sources said.
But they said the Blackstone consortium has the edge at the moment due to its more advanced financing and experience with Cadbury's former European soft drinks business.
Blackstone and Lion bought Cadbury's continental European beverages business for 1.85 billion euros in February 2006, and are keen to join the two businesses together to create greater mass for a likely eventual exit some years away.
Among other bidders, U.S. private equity group Cerberus Capital Management has pulled out, while others such as Cott, a Canadian bottler of own-label soft drinks, have struggled to find partners for a bid.
Cadbury has said it intends to return capital from the drinks sale to shareholders and analysts say they expect 5.8 billion pounds to be returned. If a special dividend is used, this would equate to a payment of 2.80 pounds a share.
Cadbury decided to separate its North American soft drinks business in March soon after U.S. billionaire Nelson Peltz built up a stake in the company, in order to focus on its confectionery business.
By June, Chief Executive Todd Stitzer said a sale was more likely than a spin-off as it gave better value to shareholders.
Cadbury's North American beverages employs over 18,000 people at 24 plants. Last year, it had revenues of nearly 2.6 billion pounds and operating profits of 584 million pounds.
Cadbury and the private equity groups declined comment.