Cadbury acquires Snapple for £1bn

Cadbury Schweppes, the Dairy Milk to Dr Pepper company, yesterday said it was buying the US-based Snapple Beverage group for a cash consideration of $910m (£645m).

Cadbury Schweppes, the Dairy Milk to Dr Pepper company, yesterday said it was buying the US-based Snapple Beverage group for a cash consideration of $910m (£645m).

The acquisition, which is Cadbury's second biggest, will also involve the assumption of $420m in Snapple debt and a further $120m cash payment for employee options. This brings the overall cost to Cadbury of the deal to $1.45bn (£1bn).

John Sunderland, Cadbury's chief executive, said: "US beverages is our largest core market and Snapple is the leading premium brand in the sector." The acquisition of the Snapple portfolio, which includes Mistic flavoured drinks, Stewarts root beer and Royal Crown cola, as well as the flagship Snapple still drinks range, consolidates Cadbury's position as the number three drinks company in the US behind Coca-Cola and Pepsi.

Shares in the UK group closed up 11.25p at 391.5p as the City largely welcomed the deal. One analyst said: "I think it is a pretty low-risk transaction at not a bad price."

But others were less impressed. Nicholas Sochovsky, an analyst at Lehman Brothers, said: "This is not a transforming deal ... It does not solve the problems the company has in terms of the low growth of its confectionery stream." Once the Snapple acquisition has been fully absorbed, soft drinks will account for about 60 per cent of Cadbury's group operating profit.

Mr Sochovsky said investors would now be hoping for a major deal in the sweet foods sector. He suggested that Cadbury could bid for Adams Confectionery, the maker of Clorets mints and Trident chewing gum, which is expected to be sold as a result of the $105bn acquisition of Warner-Lambert, its parent company, by Pfizer, the US drugs giant. Adams has a price tag of $4bn to $5bn. Mr Sunderland said Cadbury still had about $3bn of firepower left to help fund acquisitions.

Yesterday's deal is the latest chapter in the Snapple group's chequered history. It was bought by Quaker Oats, the porridge specialist, for $1.7bn in 1994. But after a slump in sales and profits following a series of management mishaps, the company was snapped up by Triarc, its current owner, for just $300m.

Cadbury will pay a further $200m to Snapple related to tax, but as a result will see a saving of $250m over 15 years in terms of writing off goodwill associated with the acquisition.

In 1999, Snapple had sales of $772m and earnings before interest, tax, depreciation and amortisation of £111m. The takeover, which is expected to complete by November this year, will bring cost savings of "at least" $500m, at a one-off cost of $30m.