Cadbury Schweppes sells drinks business in Europe for £1.3bn

The race to buy Cadbury Schweppes' European soft drinks arm ended yesterday with its €1.85bn (£1.27bn) disposal to a private equity consortium comprising Blackstone Group and Lion Capital.

The price topped analysts' expectations and leaves the confectionery giant focused on its main US fizzy drinks business and core chocolate-to-chewing gum operations.

Blackstone and Lion Capital are understood to have beaten off competition from rival financial bidders Permira and PAI of France, which had teamed up with PepsiCo - although it is thought that Cadbury refused to open its books to its arch US rival because it is a competitor.

Lyndon Lea, founding partner of Lion Capital, said the brands on offer were some of the strongest in the world. He has been keen to clinch a major drinks deal since hiring the former Bacardi chief executive Javier Ferran earlier this year. He created Lion Capital by hiving off the European arm of Hicks, Muse, Tate & Furst, the Dallas-based buyout fund.

The consortium, which was among the early favourites to clinch the deal, is acquiring brands such as Schweppes, Orangina, Oasis and La Casera. Cadbury Schweppes will still own the Schweppes brand in the US and does not intend to change its name.

Mr Lea said the "fruit-based nature" of the Cadbury portfolio was "on trend". Mr Ferran will be president of the new European drinks powerhouse, which has operations in Germany, Spain, Portugal, Belgium and France.

Industry sources said Blackstone and Lion Capital won the auction by promising to complete the deal quickly. Second-round bids were received at the end of last week and the deal was sealed over the weekend. Cadbury only put the business up for sale in September and the process was initially expected to drag on well into the new year.

Todd Stitzer, Cadbury's chief executive, said he was "delighted" the deal had been completed so quickly.

Cadbury, which recently warned it would miss its full-year profit margin target, intends to use the proceeds to cut its £4.3bn debt mountain. Analysts speculated that it might also seek to acquire some bolt-on confectioners. After completion of the deal, around two-thirds of Cadbury's sales will come from its chocolate and sweets brands. The sale is expected to dilute next year's earnings by about 6 per cent.

In the event that Cadbury fails to convince various French workers' groups to back the deal, it has promised to pay Blackstone and Lion Capital a £63.5bn break-fee - 5 per cent of the transaction price. It will then not be able to put the business back on the market for at least 12 months.

The European drinks business had underlying operating profit of £116m on sales of £653m last year. As of 19 June, it had net assets of £644m. It has 3,000 employees and owns bottling operations in Germany, Spain, Portugal and Belgium.

The sale is expected to be completed early next year.