Cadbury nets pounds 1.1bn from drinks sale

CADBURY SCHWEPPES completed one of the most important deals in its history yesterday when it agreed to sell its soft drinks businesses outside the United States to Coca-Cola for pounds 1.1bn.

The deal is a strategic watershed for the confectionery and soft drinks group, which has recognised that it cannot fight against the might of Coca-Cola and Pepsi round the world. It plans to shift its focus towards confectionery instead.

Cadbury will retain the Schweppes brand in the US, but it will now account for only 2 per cent of group business. The company is therefore likely to change its name, with Schweppes expected to be dropped. "We will consider the name of the company in due course," the company said.

Cadbury will no longer control the Schweppes brand in the UK, where it has become synonymous with mixers such as tonic water, dry ginger, bitter lemon and others.

Cadbury-Schweppes says it remains committed to Dr Pepper, the flavoured soft drink brand it acquired in 1995, but said it would be looking for acquisition opportunities in confectionery.

John Sunderland, chief executive, said Cadbury's soft drinks operations had been constrained by small market shares and a complicated distribution arrangement under which it relies on its main rivals for bottling and distribution.

Although Cadbury has a 15 per cent share of the Us soft drinks market, its average is only 3 per cent in other markets. "We see a lot of opportunities for consolidation in confectionery, which we frankly didn't see in beverages," said Mr Sunderland.

The brands included in the deal are Schweppes Dr Pepper, Canada Dry, Crush and Oasis, in 120 countries outside the US. Last year these operations yielded profits of pounds 56m, 9 per cent of the group total. Cadbury will also be selling its bottling operations and other assets outside the US for an estimated pounds 500m, and its drinks businesses in France and South Africa.

The deals are expected to reach completion in mid-1999, giving Cadbury a warchest of around pounds 1bn. Possible targets include Suchard, although Philip Morris may not be willing to sell. It may also return to the confectionery market in the US, which it left 11 years ago when it licensed the Cadbury name to Hershey.

But analysts suggest a share buyback is the most likely outcome. However, some added that the sale may make the streamlined group more vulnerable to takeover.

The deal was welcomed in the City, where Cadbury Schweppes shares were marked up 6 per cent to 989p, close to an all-time high. Tim Potter, food analyst at Merrill Lynch, said: "They are selling not because they can't hack it with the big boys, but at this price, who can blame them?"

Mr Potter said the sale made a demerger of the US drinks business more likely, although the company was most likely to use the proceeds for a share buyback. "This deal shows that the management is really serious about creating shareholder value."

Another analyst said: "It is an admission of defeat. They are saying it would have cost too much to have really backed soft drinks outside America, and the distribution problems were just to complicated. But this looks like a good way out."

Cadbury also said it planned to relaunch its 7-Up brand in the US for the second time in two years. The relaunch will take place in January, and see the current advertising slogan - "It's an Up thing" - replaced with something "more punchy".

In the US yesterday, Coca-Cola issued a profits warning on its fourth- quarter earnings.

200 years of

Schweppes

1783 - Jacob Schweppe, a Swiss jeweller and amateur scientist, develops a fizzy mineral water in Geneva. He comes to London's Drury Lane the same year to set up manufacture

1890s - Floated on the London stock market as J Schweppe & Co

1957 - Launches Schweppes bitter lemon

1960s - Company develops a string of well known advertising campaigns, including Sch ... you know who using the voice of actor William Franklin

1969 - Merges with Cadbury to form Cadbury Schweppes

1998 - Trademark sold to Coca-Cola in 120 countries, excluding the United States