Cadbury becomes world leader with Adams acquisition
and Kraft to buy the Adams sugar confectionery group, making it the
world's biggest player. But there are still question marks over
whether Adams was the right acquisition for Cadbury, and whether
the $4.9bn price tag was too high.
Cadbury Schweppes of the UK has become the world's biggest confectionery company following the acquisition of the US-based group Adams from Pfizer for $4.2 billion (€4.1bn).
Cadbury has made no secret of its interest in Adams, which has given it a major foothold in the important US market and in part makes up for the failure to buy Hershey earlier in the year. But unlike the Hershey bid, which Cadbury is thought to have made in association with Swiss group Nestle, the two companies were thought to have been rival bidders for the Adams business. Kraft, the US food group, is also said to have looked at Adams.
As well as becoming the world's leading confectionery company, Cadbury will have a strong position in the global chewing gum sector (the number two player behind Wrigley with a 26 per cent market share with brands such as Trident and Dentyne Ice) and will hold the leading position in the higher margin functional confectionery sector, where Adams has strong brands such as Halls medicated confectionery and Clorets breath mints.
As well as strengthening its foothold in the US, Cadbury will also gain access to major new markets, particularly in Latin America.
John Sunderland, CEO of Cadbury Schweppes, said: "Adams gives us confectionery market leadership and a unique portfolio with an offering in every confectionery category. It brings powerful brands, access to new geographies and significant scale in the fastest growing confectionery sectors. Cost and revenue synergies, and the opportunity to drive the business within a global confectionery group, will create significant value for our shareowners."
Cadbury said that Adams had 2001 net sales of $1.9 billion across 70 countries, giving it a 3.3 per cent share of the total global retail confectionery market . But the 25.5 per cent share of the functional market - which grew at an average 5 per cent per annum between 1998 and 2001 compared to 2 per cent for the confectionery market as a whole - was the main attraction for Cadbury.
Cadbury has been one of the most acquisitive companies in the European food and drink sector in recent years, adding other sugar confectionery brands such as Hollywood chewing gum in France or soft drinks businesses such as Orangina. Although it is best known in its home market as a chocolate maker, most of its international confectionery growth has been in the faster-growing sugar confectionery sector.
Adams had been valued at around $4 billion prior to the deal, so Cadbury will undoubtedly face accusations that it overpaid for the company. In addition, some analysts have questioned the true synergies Cadbury will gain from the deal, with market analysts Euromonitor, for example, arguing that the dependency on the troubled Latin American region (40 per cent of 2001 sales) and the declining sugarised (rather than sugar-free) gum sectors could come back to haunt the company.
Questions have also been raised about Cadbury's ability to generate synergies in the US, where it is only a small player, but the company said it had plans to expand both companies' portfolios there and generate around $60 million per annum by 2006 in additional operating profits.
The British group clearly believes that strength of the Adams business is worth the price, and the additional boost the company's extensive distribution network in the Americas - North, Central and South America accounted for 75 per cent of its sales in 2001 - will give to Cadbury's own brands should not be underestimated.
