Cadbury shelves £6.5bn sale of US drinks unit in favour of IPO

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The Independent Online

Cadbury Schweppes has called off the £6.5bn auction of its American drinks arm and will instead push ahead with a stock market listing of the business.

The company abandoned the sale process because the deterioration in the world credit markets had led private equity bidders to drastically reduce their offers. "While the board continues to be committed to the principle of maximising shareowner value, it does not believe current market conditions will facilitate an acceptable sale process in the foreseeable future," it said in a statement yesterday.

After extending the auction deadline in July in hope of a market recovery, the company now hopes to list shares in the drinks business on the New York Stock Exchange by the second quarter of next year. In preparation for the split, the confectionery giant announced a management reshuffle.Its chairman, Sir John Sunderland, who has been at the candy giant for 40 years, said he will retire next spring. He has pledged to stay on until the spinout is complete, however, and will help establish the boards of the two groups. Once independent, the drinks business, which owns brands such as Dr Pepper and Snapple, will be led by Larry Young, the head of the group's bottling business. He will take over from Gil Cassagne, the current beverages boss, who the company announced was stepping down for "personal reasons".

The developments came as part of a trading statement that revealed a particularly strong quarter for the group. Sales grew by 10 per cent over the same period last year, bringing the overall growth rate to 7 per cent this year. That is well ahead of the stated goal of 4 to 6 per cent annual turnover growth.

The performance came despite the rising cost of raw materials, especially of milk. The chief executive Todd Stitzer said that he didn't foresee the milk price denting numbers this year, but said it would likely lead to a jump in "commodity input prices of between 5 and 6 per cent," next year.

The company's shares ended up 15.5p at 616p, buoyed as much by the heady numbers as by the greater clarity about its separation plans. The newly listed shares will be distributed to current investors.

Before the credit crisis hit, mooted prices from private equity giants including Blackstone and TPG for the beverages unit were in the £8bn range. Analysts now expect it to float at a value of about £6.5bn.

The company did not completely close off the possibility that the drinks business could be sold, however. Stockbrokers Panmure Gordon said: "Given [the listing] is not going to happen until [the second quarter of] 2008 this still allows a window for debt markets to stabilise sufficiently to allow private equity financing to be raised."

Ivor Dunbar, head of global capital markets at Deutsche Bank, said while the debt markets had reopened for high-quality corporate debt, loans for private-equity buyers remained closed. "I don't see a return to business as usual for leveraged finance this side of Christmas."

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