Last Updated Apr 11, 2008 12:47 PM EDT
Issuing a new stock into one of the most volatile markets in decades might seem ill-advised, but waiting any longer could have been even worse for the British company's debt-laden core confections business, which will be called Cadbury Plc. That it was able to pull off any sort of deal has to be considered a major accomplishment.
"It's the end of the beginning," Andrew Wood of Bernstein Research told the Financial Times. The beverages unit, he added, "has been a diversion for management for too long."
Assuming that shareholders approve the spinoff when they vote next month, the company may have just barely made it. Its initial plans to sell the beverages unit to a private equity consortium fell apart as the credit crisis deepened, putting a halt to many private-equity deals.
The company's Plan B, a public float, had analysts concerned that the company had waited too long. While the proposed divestiture is not nearly as reliant on credit as a private-equity sale would have been, it still needs a lot of financing. Last week, the company announced that it had secured financing worth about $3.8 billion from five major banks.
The new company will not initially pay dividends, which may have been the only way it could secure credit. The initial offering is expected to raise about $4 billion, which will go toward paying down Cadbury Plc's debt load.
Even as the credit markets were limiting Cadbury's options, the company was under enormous pressure from Nelson Peltz, the activist shareholder who for more than a year has been loudly prodding the company to change its ways. Even with the added costs of the demerger, Mr. Peltz is likely to be satisfied by the move, at least for now. No doubt he will continue putting pressure on Cadbury Plc., but even there, things are looking up, with the company reporting higher margins, bigger profits, and increased market share in the U.S. chewing-gum market. Still, Mr. Pelz is no wallflower -- in December, he boosted his stake from 3.5 percent to 4.5 percent and issued warnings of a takeover of Cadbury, even as the company was planning the demerger and making other moves in order to placate him.