Cadbury Schweppes eyes US bottler buyout

By Chris Mercer

- Last updated on GMT

Related tags Soft drinks Soft drink Coca-cola Pepsico Cadbury schweppes

Cadbury Schweppes may be about to buy up its Dr Pepper/Seven Up
bottling partner in the US, says a report, indicating a growing
consolidation trend in the US soft drinks supply chain.

Cadbury Schweppes was this week close to buying the remaining shares in the Dr Pepper/Seven Up bottler from private equity firm, the Carlisle Group, according to a report in the UK's Financial Times​.

Cadbury, which owns the Dr Pepper and Seven Up brands and already has a 45 per cent stake in the bottler, could pay up to £300m for the takeover, according to analysts cited in the report. The firm has so far declined to comment.

The move, if confirmed, would add to an emerging trend for more consolidated distribution channels on the US soft drinks market.

Cadbury could improve its negotiating power with increasingly big retail chains, such as Wall-Mart, by gaining full control of the Dr Pepper/Seven Up bottler.

Coca-Cola recently announced it would use its main US bottler, Coca-Cola Enterprises, to trial direct delivery of its Powerade sports drink to Wall-Mart stores. WallMart requested the move last summer, angering many of Coke's other bottlers.

Soft drinks firms, however, already exert influence over their main bottlers, as shown by bottlers' names incorporating the drinks companies' major brands.

Julian Lakin, analyst at Mirabaud Securities, questioned why Cadbury wanted to buy up the Dr pepper/Seven Up bottler. "It's not something they really need to do,"​ he said.

There may be other motives driving Cadbury's negotiations alongside the promise of better bargaining power with retailers.

Faced with a shrinking US carbonated soft drinks market and few growth opportunities, private equity group Carlisle may be keen to ditch its shares in the bottler.

Other analysts suggested Cadbury could have on eye on selling its entire North American soft drinks division, something it may be easier to do if a wholly owned distribution arm was included.

Lakin told​ that a sale was possible in the long-run. He said Cadbury's North American drinks business "generates lots of cash, which it can plough into gum, chocolate and confectionery.

"But, ultimately, given this business is not actually growing, there's only so much cost you can squeeze out of it."

Cadbury has repeatedly denied any intention to sell its North American soft drinks arm, after it sold its European drinks division to private equity last autumn.

The group lies third in the US soft drinks market, and, although well behind PepsiCo and Coca-Cola on market share, managed to outperform its rivals for most of last year in the struggling fizzy drinks sector.

Cadbury's non-carbonated beverages portfolio also jumped forward from one per cent sales growth at the start of 2004 to four per cent in 2005.

Its major challenge is a lack of space to grow further, with the US soft drinks market fairly tightly sewn up between Coca-Cola, PepsiCo and private label suppliers like Cott.

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