Cadbury Schweppes admits to European drinks sale

By Chris Mercer

- Last updated on GMT

Related tags Coca-cola Cadbury schweppes

After months of secrecy and whisperings, Cadbury Schweppes has
finally confirmed that it is looking to dump its European soft
drinks arm for a greater focus on confectionery.

The firm said the decision had come after strategic business review. "The potential for growth and value creation is greater in the group's other operations,"​ said chief executive Todd Stitzer.

Proceeds from the sale, expected to begin "in the near future"​, will be used to cut net debt, which stood at £4.3bn in June 2005.

Cadbury will hang on to its US beverages division, including Dr Pepper, Sunkist and 7 Up, for its high returns and cashflow. This business, now holding its own, could be used as a 'cash cow' to generate investment funds for the confectionery division.

Analysts have consistently priced Cadbury's European drinks business, including Orangina, Oasis and Schweppes brands as well as several bottling operations, at around £1bn.

Julian Lakin, analyst at Pereire Tod​, recently told​ that it was "entirely possible"​ the group was already in negotiations for a sale.

Cadbury Schweppes had vehemently refused to make any comment on speculation it was looking to sell its European soft drinks, printed both here and in other media.

So who wants it? Coca-Cola is unlikely as earlier negotiations to buy the same business were torpedoed by competition authorities. PepsiCo is a decent possibility, yet Lakin said they might also encounter trouble buying the whole business.

He added that PepsiCo may also interested in picking off some of the division's brands to supplement its portfolio. Orangina, for instance, holds a fairly unique position by straddling both carbonated and non-carbonated sectors.

A more likely suitor at the moment may be found in private equity, with two firms - Carlyle Group and Lion Capital - both rumoured to have shown interest.

However, Lakin said that a break up of the division was a definite possibility at some point. Even if the drinks division does go to private equity, he said "private equity firms don't hold things forever, they always need an exit plan"​.

The division's poor-to-average market performance recently may also put some bidders off. 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.

Lakin said Cadbury's European drinks showed few growth prospects and that private equity firms would be asking: "'In five years, who is going to buy it off us?' That's a problem."

Yet the business is still generating a fair amount of cash and chief executive Stitzer was keen to point out that "Europe beverages has a great portfolio of brands"​.

The division, with its sales volume of around 1.7bn litres, is also the third biggest player on Europe's carbonated drinks market; though the top two, PepsiCo and Coca-Cola, are barely visible on the horizon with more than three quarters of the market locked up between them (Coke has around 50 per cent, Pepsi around 18 per cent).

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