Cadbury Schweppes to list soft drink arm

By Neil Merrett

- Last updated on GMT

Related tags: Cadbury schweppes, Soft drink, Dr pepper snapple group

Cadbury Schweppes today opted to demerge its €10bn beverage
arm from its confectionary business by listing the unit
as a separate company on the New York Stock Exchange.

The group had originally intended to sell off the division, estimated to be worth about £7bn (€10bn), but will now separately list the operations on the NYSE instead. The company's management wants to focus on the high growth confectionary business. The company opted for the listing over a sale, citing unfavorable debt market conditions that might keep potential suitors from offering a premium price for the drinks division, which owns brands such as Snapple, Dr Pepper, Seven UP, and Mott's. Shareholders in Cadbury Schweppes will receive shares in the new drinks company. Group chairman Sir John Sunderland said the decision to split the operations was the most viable option for the group in the current financial market. "With an acceptable sale is unlikely in the foreseeable future, the board believes it is prudent now to focus on demerging our Americasbeverages business,"​ he stated. Management had originally suggested in June that the beverage division would be sold off. However the prime rate mortage fallout has sapped up potental funds in the lending market, making it more difficult for suitors to raise cash. The company said its strategy is to focus on: "fewer, bigger and more value-creating initiatives".​ With 80 per cent of the drinks division's revenues coming from the US market, the company said that floating separately on the NYSE would allow the unit to better compete in a tough market. To ensure greater profitability as a stand-alone venture, Cadbury Schweppes announced it would be cutting 470 jobs related to beverage production as part of a proposed drive to make £35m (€50m) worth of annual costs savings costs by 2008. The total cost of the restructuring measures will also be £35m (€50m), the company said. The restructuring will be vital to offsetting the expected impacts of higher commodity prices and the loss of distribution rights to the Glaceau brand of beverages on its operations, the company said. The changes are the latest in a long line of shake-ups to the Cadbury Schweppes beverage production over the last few years. Between 2003 and 2005, the company began mergering its separate soft drinks brands into one division. Over the last two years, the group has also taken greater control of third party bottlers as part of plans to become a more fully integrated beverage manufacturer and distributor. Cadbury Schweppes' decision to create two separate businesses for its operations could be timely, after it also announced comparatively stagnant sales growth in its beverage operations compared to confectionery. Beverage sales for the third quarter of this year were up three per cent on a like-for-like basis, the company reported today. Brands like Sunkist, A&W and Canada Dry posted share gains in the carbonated soft drinks market, despite declines for Dr Pepper and 7UP, the company reported. In the non-carbonated drinks segment, the Snapple brand was boosted by the launch of new tea and juice varieties. The division's performance was further boosted by the bottling business, which benefited from growth in brand franchising, and higher prices. However, more innovative product launches like Accerlerade did not perform to expectations, the group said. Meanwhile, the confectionery division posted increased revenues of 10 per cent over the third quarter. The company forecasts total sales growth for the current fiscal year will be seven per cent.

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