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Cadbury set to acquire Dr. Pepper

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April 27, 2006/Culled from FT.




CADBURY Schweppes is close to acquiring the Dr. Pepper/Seven Up Bottling Group, the largest indepenent bottler in the U.S, from the Carlyle Group.

The acquisition, which is expected to be announced shortly will give Cadbury greater control over the distribution of its U.S. soft drink brands, which include Dr. Pepper and Snapple.

Cadbury presently has a 45 per cent equity stake in the bottling group, with most of the remainders held by Carlyle, a private equity firm. Cadbury and Carlyle bought the privately held group for $283 million in cash and $408 million in debt in 1999.

Analysts said Cadbury, the third biggest soft drinks manufacturer in the U.S. behind Coca-Cola and Pepsi with a 17 per cent share of the fizzy drinks market, could pay close to $300 million for Carlyle\'s equity stake.

Cadbury has however declined to comment.

The purchase will add to growing signs of restructuring in the U.S. beverage industry as soft drink companies rethink their relationships with the bottlers that produce and distribute their products.

Beverage companies are seeking greater consolidation among bottlers in response to mounting pressures from powerful retail chains, such as Wal-Mart, for suppliers to become more efficient.

By gaining greater control of its distribution network, Cadbury could negotiate with retailers directly.

Around 24 per cent of its fizzy drinks are distributed by the Dr. Pepper bottling group with a better part of the rest done by bottlers, co-owned by Coke or Pepsi.

Some analysts say that combining its manufacturing and distribution operations may make it easier for Cadbury to eventually spin off its U.S. beverages arm and use the cash to make acquisitions in confectionery.

Although the U.S. beverages operations have been recording healthy growth over the past two years, and generating cash for Cadbury, the company has identified confectionery as its key growth business globally.

Cadbury is claimed to be the world\'s biggest confectionery company, with a market share of about 10 per cent putting it ahead of Mars, Nestle and Hershey.

Cadbury has been diversifying from chocolate confectionery in recent years and moving more heavily towards sugar confectioneries like chewing gums.

It believes gum has potential to be marketed as a \"healthy\" kind of confectionery, because it can be used to stop hard breath and can prevent tooth decay if combined with fluoride.

Cadbury is keen to challenge Wrigley\'s dominance of the global gum market.

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