October 10, 2007 / 6:15 AM / 10 years ago

Cadbury to demerge North American drinks unit

LONDON (Reuters) - Cadbury Schweppes, the world’s largest confectionery group, said it will focus on demerging its 7 billion-pound ($14.2 billion) North American soft drinks unit and list the business in New York rather than sell it off.

The London-based company, maker of Dairy Milk chocolate, Trident gum and Halls cough drops, also said on Wednesday in a trading statement that it had seen very strong third-quarter worldwide confectionery revenue growth of 10 percent.

Cadbury decided to split off its Dr Pepper and 7UP drinks business in March, and a sale to private equity buyers seemed most likely until it said in late July that turbulence in the world debt markets had forced the auction to be delayed.

Chief Executive Todd Stitzer said debt markets had not recovered and an acceptable sale price was unlikely in the foreseeable future and so the board decided in early September to focus on a demerger by the second quarter of 2008.

“We are very focused on a demerger and shares will be distributed to existing shareholders in a New York-listed beverages group,” Stitzer said on a conference call.

The decision came after Reuters reported in early September that the group was likely to opt for a demerger rather than selling the business, and so create a separate soft drinks company worth up to 7 billion pounds.

Cadbury shares were up 0.7 percent at 604-1/2 pence by 5:15 a.m. ET. They had fallen from a 12-month high of 728p in late May as the prospect of a quick and easy sale of the drinks unit faded.

“Uncertainty around the Americas Beverage separation has been partly resolved and trading in confectionery is good,” said Investec Securities analyst Martin Deboo.

“On the trading front a 10 percent organic growth in confectionery is impressive,” said analyst Charlie Mills at brokers Credit Suisse, adding that better confectionery trading was offset by weaker U.S. beverages.

Cadbury also hinted of a cash distribution to shareholders, saying the creation of two strong businesses would enable shareholders to receive “the benefit of any immediate cash surplus at the time of separation”.

The newly-listed North American beverages business will be led by Larry Young, chief executive of its bottling operation, as current head Gil Cassagne is resigning for personal reasons, after a tough third-quarter with sales up just 3 percent.

Cadbury said a restructuring will lead to annual cost savings of 35 million pounds and include the loss of 470 jobs, or 2.5 percent of the workforce. The new company’s name is likely to reflect its big brands such as Dr Pepper and Snapple rather than be called Schweppes, Stitzer said.

On the confectionery side the 10 percent third-quarter underlying rise in revenue will give a 7 percent rise for the first nine months of the year above the group’s annual 4-6 percent target after a 6 percent first-half rise.

UK confectionery sales rose 13 percent after a strong recovery from its previous third-quarter in 2006 which was hit by hot summer weather and a salmonella-related recall.

The group also warned commodity costs, such as liquid milk, are expected to be around 5 to 6 percent higher for both its confectionery and beverage operations but hopes to offset these increases with price rises for its products.

Cadbury said at its half-year results that confectionery operating margins dipped 0.3 percentage points in the first half as it raised investment behind its brands, and said then it did not expect margins to improve until 2008.

Stitzer declined to comment on media reports that U.S. chocolate maker Hershey Co met with Cadbury to discuss a possible combination after the charitable trust which controls Hershey said it was not satisfied with the group’s recent performance.

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