Private equity stalking Cadbury Schweppes drinks

By Chris Mercer

- Last updated on GMT

Related tags Cadbury schweppes Soft drink

Cadbury Schweppes still looks likely to ditch its European soft
drinks arm for the right price, yet it is difficult to find a buyer
for a stumbling business with little growth prospects.

Rumours have been circulating that a private equity outfit, the Carlyle Group, is interested in taking on Cadbury Schweppes' European drinks division.

"My feeling is still that this is a business they [Cadbury] would like to dispose of. It is not a basket case by any means, but all their activity has been down a confectionery route,"​ said Julian Lakin, analyst at Pereire Tod​, to​.

Lakin, who has followed Cadbury's fortunes for around 30 years, said it was "entirely possible"​ that the firm was already in negotiations for a sale.

Rumours that Cadbury Schweppes is again touting its European soft drinks business have been surfacing for a couple of months. The firm itself did not deny the reports, but refused to make any comment on the matter.

"The business is not really going anywhere and it is not obvious how they can move it further forward,"​ said Lakin, adding that a sale would also improve the company's credit rating.

Cadbury tried to sell the same business a few years ago, but a buyer was not found and a deal with Coca-Cola was quashed by competition authorities. Coca-Cola is estimated to control around half of the European soft drinks market.

Private equity has now become the most obvious route for a Cadbury Schweppes sale because it would be unlikely to raise competition concerns.

However, the division's performance has been disappointing recently, hardly inspiring prospective bidders. Like-for-like sales fell one per cent in the first half of 2005, while the firm lost market share across its key markets of France, Spain and Germany in 2004.

"Private equity firms don't hold things forever, they always need an exit plan. They will be asking: 'in five years who is going to buy it off us?' That's a problem,"​ said Lakin.

He added that he saw few growth prospects for Cadbury's European drinks arm in the near future, although it was generating a decent amount of cash - mainly from franchise agreements.

As a result, Lakin said a break-up of the division was a definite possibility at some point.

The soft drinks industry's second giant, PepsiCo, may be interested in pulling away certain brands, such as Orangina, to supplement its growing portfolio in Europe. Orangina holds a fairly unique position, straddling both carbonated and non-carbonated drinks sectors.

Several analysts believe Cadbury Schweppes' European drinks division would have to sell at a good price to avoid dilution. Previous speculation has put the price at around £1bn (€1.5bn).

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