Cadbury to split drinks and confectionery businesses

By Chris Mercer

- Last updated on GMT

Related tags: Cadbury schweppes, Soft drinks, Dr pepper snapple group, Kraft foods, Cadbury plc

Cadbury Schweppes has said it will separate its confectionery and
US soft drinks businesses, sending ripples of speculation across
the financial sector about the firm's motives.

The move, announced Thursday, would essentially split the business in half in terms of profits, with top brands like Dairy Milk chocolate and Halls on one side and Dr Pepper and 7 UP staring across from the other. News of the split comes in the same week as notorious investor Nelson Peltz took almost three per cent of Cadbury Schweppes' shares, a double-whammy that has prompted a furore of speculation about the UK-based firm's future. Todd Stitzer, Cadbury chief executive, said the separation would help each division focus on "further revenue growth, increasing margin and enhancing returns for their respective shareowners".​ Analysts in the UK have questioned Cadbury repeatedly in recent years over its plans for its US soft drinks arm, Americas Beverages. Rumours of a possible sale grew more intense after the group sold off its European soft drinks division, including the Orangina brand, for £1.4bn at the start of 2006. Cadbury has privately described the US business as a "cash cow"​, generating high revenue that can be farmed into investment for the confectionery and chewing gum divisions. One analyst said the firm may have made the final decision on a split after a series of shareholder meetings. The company spoke to shareholders representing around 40 per cent of its shares, following its preliminary results announcement on 20 February. Cadbury's Stitzer said the group had reviewed the US beverages division throughout 2006. It has increased its ability to stand independently, he said, after acquiring several third party bottlers for 7UP and Dr Pepper last year. Americas Beverages now controls production and distribution for around 40 per cent of its volumes. At the same time, the firm found significant opportunities for higher margins and sales in global confectionery, it said. Confectionery sales have grown five per cent annually for the last three years, and gum sales have increased 10 per cent in that time. So what happens now?​Julian Lakin, analyst at Mirabaud Securities​, questioned how much extra value could be gained by the split. "I don't think it's a case of two plus two equals five, probably more something like two plus two equals 4.2."​ Lakin added it was possible one, or perhaps even both, of the businesses could be subject to a takeover offer. "Some people in private equity might be invited by the cash flow of the beverage business."​ The future role of Nelson Peltz may also be a factor in Cadbury's development. Peltz, who heads Trian, a US-based hedge fund, is renowned in finance as an activist shareholder and has previously attempted to make changes at another multinational food group, Heinz.

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