Coke Pours $$ Into Cadbury Deal
Cadbury Schweppes Plc said Friday that it is selling its non-U.S. brands, except those in South Africa and France, to Coca-Cola for $1.85 billion but expects that its fourth quarter earnings will fall short of analyst expectations.
Shares of Coke (KO), a component of the Dow Jones Industrial Average, fell 3 1/6 to 63 Friday morning. The company issued a similar warning in September.
The soft drink giant said it will earn 24 to 25 cents per share, below the 30-cent consensus in a First Call survey of analysts. The company blamed overseas economic turmoil for lower profits.
Cadbury said Friday that it's making a clean sweep of its non-U.S. brands, including famous brands such as Schweppes, Dr. Pepper, Canada Dry. and Crush, because it wants to focus on its more lucrative foothold in the States. Cadbury's shares surged 5.4 percent to 985.John Sunderland, Cadbury's chief executive, said the brands sold outside the States were profitable, but that: "We have recognized that outside the U.S. they can be more successfully grown within the broader international infrastructure which Coca-Cola has established over many years."
Admitting that Coca-Cola has a far more extensive and effective distribution network than it does, Cadbury described the route to market as "very complex." It said the business to be sold operate in over 120 markets, and has an overall market share in carbonated drinks of 3 percent. In 1997, these beverage businesses generated 56 million pounds ($94 million).
Cadbury will also sell its non-U.S. bottling and related businesses. The combined trading profits before restructuring costs of these businesses were 33 million pounds in 1997, which was 5 percent of the group's total.
The company said it will use the proceeds from the brands sale to bolster its business -- and that this may well include acquisitions. It also is considering a share buyback program.
In the U.S, its soft drinks businesses remain "robust and profitable," the company said. Its leading U.S. brand, Dr Pepper, has grown an average 1/2 times the market rate over the first 14 years. It also has a far bigger market share in the U.S. than abroad, commanding 15 percent overall market share and "secure routes to market" through long-term agreements with its major U.S. bottlers, as well as a 40 percent stake in the American Bottling Company."
Coca Cola said the purchase will give it an opportunity to break into areas of the beverage business where it currently has a nominal presence. Cadbury, which said it expects the sale to be "broadly neutral to earnings" in the first year following the disposals, plans to sell the businesses in a series of transactions over the next 6 to 12 months. It expects to reap 500 million pounds ($835.7 million).