London: Cadbury Schweppes Plc, bowing to pressure from investors led by billionaire activist Nelson Peltz, will sell or spin off its North American beverage unit, the maker of Dr Pepper and 7 Up sodas.
Chief Executive Officer Todd Stitzer said on a conference call that “many candidates” may bid for the division and “now is the moment to separate” the business. The unit may be worth as much as 8.2 billion pounds ($15.9 billion), said Jon Cox, an analyst at Kepler Equities in Zurich with a “buy” recommendation on the stock.
Cadbury, the world’s biggest maker of candy, sold its underperforming European beverage unit last year to concentrate on sales of Dairy Milk chocolate and Trident gum. Peltz, who in 2006 fought to get elected to H.J. Heinz Co.’s board, has amassed a stake of 2.98% in Cadbury, whose stock has surged 16% this week.
“Confectionery is more of the core brand for Cadbury,” said Kevin Lyne-Smith, who helps oversee $100 billion at Julius Baer Holding AG’s private-banking division in Zurich. “I see them using the cash from the disposal” of the beverage unit “to acquire more brands on the confectionery side.”
Shares of Cadbury jumped as much as 43 pence, or 7.1%, to 645 pence in London and were up 3.9% at 625.5 pence at 12:34 p.m. local time. This week’s stock surge has lifted the company’s market value to about 13 billion pounds.
“Private equity will come in and take a very hard look,” said Philip Keevil, a senior European partner at Compass Advisers LLP in London.
More information will be provided with the release of an update on its activities scheduled for 19 June, London-based Cadbury said on 16 March in a statement. The company makes soft drinks under brands such as Canada Dry and Mott’s, while its candy products include Trident and Bubblicious gum.
It is time “to focus on making Cadbury the biggest and best confectionery company in the world,” Todd Stitzer said on a call with journalists. The company has not yet decided how to carry out the separation, nor has it received a bid for the beverage unit, he said.
The division had sales of 1.8 billion pounds last year, an increase of 44%, as Cadbury acquired bottlers to improve distribution in the US Cox’s estimate is based on capital worth 7 billion pounds and debt of 1.2 billion pounds.
Cadbury still has “an appetite” to make acquisitions in gum, chocolate and confectionery in the range of 250 million to 350 million pounds, the CEO said. The company has not received any takeover bids for its core candy business, he said.