Cadbury offers $1.7bn for Pepper

Cadbury Schweppes, the drinks and confectionery group, yesterday announced a $1.7bn (£1.1bn) agreed takeover offer for Dr Pepper/Seven-Up of the US, tripling its share of the key American soft drinks market and taking on the giants of Coca-Cola a nd Pepsi.

To help fund it, Cadbury is raising £395m from a one-for-seven rights issue at 340p a share. The market was unfazed by the group's second cash call in under 18 months, and the shares added1.5p to 420p.

Cadbury directors cited increased volumes, the potential for sales of Dr Pepper outside the US, and cost savings through cutting duplicated overheads. The deal will increase the British company's US market share from 4.9 per cent to 16.3 per cent.

David Wellings, Cadbury's chief executive, said it was vital to crack the American market, which accounts for one in three of all soft drinks consumed worldwide, if the company was to realise its aim of being number one in non-cola soft drinks.

Cadbury, which already has 23 per cent of its target, refused to detail the scale of job cuts at Dr Pepper, America's third-biggest soft drinks outfit after Coca-Cola and Pepsi. They are likely to be substantial.

The tender offer is worth $33 a share. The rights issue is the so-called "trombone" variety, with £115m raised unconditionally, and the second instalment of £280m conditional on a successful acquisition.

Cadbury is also increasing its cash resources towards the deal by £111m via an underwritten enhanced scrip dividend alternative. It will pay a second interim dividend instead of a final dividend, which will give shareholders 16.5p if they take shares and11p if they take cash. The exercise will save £23m in advance corporation tax.

Yesterday's transaction represented a strategic milestone, Dominic Cadbury, chairman of Cadbury Schweppes, said.

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