Cadbury confirms US bottler buyout

By Chris Mercer

- Last updated on GMT

Related tags: Cadbury, Soft drink, Cadbury schweppes

Cadbury Schweppes confirmed it has bought out its Dr Pepper/Seven
Up bottling partner in the US, predicting cost savings and better
bargaining power with supermarkets.

Cadbury said it had bought the remaining 55 per cent stake in the Dr Pepper/Seven Up Bottling Group (BG) for £198m in cash.

Rumours began circulating Monday that Cadbury, which already has a 45 per cent stake in BG, was close to buying out the other major shareholder, the private equity Carlisle Group.

The deal adds to the emerging trend for more consolidated distribution channels on the US soft drinks market.

Soft drinks makers have come under increasing financial pressure over the last year due to rising input costs, growing retailer power and a shrinking carbonated soft drinks market.

Cadbury said complete ownership of BG, which already handles almost a quarter of the group's US beverage volumes, would save it £67m ($120m) by 2010, with half of this expected to be realised by 2008.

Cadbury added its takeover of BG would also give it more "leverage"​ with increasingly powerful retailers, like Wall-Mart.

The group's strategy appears to be to gain more control over distribution of its own drinks.

Cadbury also announced Tuesday it intended to buy up America's third biggest independent bottler, the All American Bottling Group, for around £36m ($65m).

Both of the deals together, it said, mean that Cadbury would be able to distribute 40 per cent of its own soft drinks in the US.

Pepsi and Coca-Cola-affiliated bottlers would still distribute another 40 per cent of Cadbury drinks, but Cadbury said it planned to spend another £112m ($200m) over the next two years on more independent bottling system acquisitions.

However, other analysts have suggested there may be more than one motive for Cadbury's supply chain control strategy.

Julian Lakin, analyst for Mirabaud Securities, questioned whether Cadbury really needed to buy up BG when 85 per cent of the bottler's volumes constituted Cadbury brands, such as Dr Pepper, Seven Up, Sunkist and Snapple.

Some have 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 BeverageDaily.com​ 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 currently sits third on the US soft drinks market, though opportunities for growth are limited due to the market dominance of PepsiCo and Coca-Cola, as well as private label drinks makers like Cott Corporation.

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

Todd Stitzer, chief executive of Cadbury Schweppes, said of the BG takeover: "The acquisition is strategically consistent, financially attractive and value enhancing. It gives us greater control over the distribution of our brands; improved operating efficiencies and customer service; and greater access to faster growing water and energy drinks."

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