Cadbury split fuels rumours of buyout interest

Cadbury Schweppes has announced plans to split its beverage and confectionery units into two separate businesses, amid speculation that private equity firms are planning bids for at least one of the divisions.

Cadbury Schweppes, the sweets and soft drinks group, has confirmed that it will split into two separate businesses, just days after activist investor Nelson Peltz took a 2.98 percent stake. Private equity firms are already being linked with bids for the soft drinks arm.

In a statement, Cadbury Schweppes outlined a lengthy justification for its decision to separate its confectionery unit, which includes well-known brands like Milk Tray, Crunchie and Wispa chocolate bars, from its American beverages unit, which owns the Dr Pepper and Canada Dry brands.

Chief executive Todd Stitzer said: “Separating these two great businesses will enable two outstanding management teams to focus on generating further revenue growth, increasing margin, and enhancing returns for their respective shareowners.”

Private equity firms are already reportedly circling the two divisions. According to a report in the London-based Times newspaper, The Blackstone Group and Lion Capital are both preparing bids for the beverages division.

The two firms are bound to be linked with a bid, having joined forces last year to buy Cadbury Schweppes’ European beverages arm, owner of the Orangina brand. However, a banking source played down Blackstone’s current level of interest, suggesting that no bid was imminent.

The beverages division was previously half-owned by the Carlyle Group, who sold its 53 percent stake back to Cadbury Scweppes last April for $353 million.

The move would appear to be a direct response to the intervention of Peltz, who was revealed earlier this week to have built a near three per cent stake and has been a vocal support of this strategy. However, it is unlikely that the company could have pushed through such a complex change of direction at such short notice, suggesting that the plan has actually been pending for some time.

Analysts have estimated the confectionery business could be worth up to £9 billion as a separate entity, while the drinks business could be valued up to £7 billion.

The market reacted positively to the news. Cadbury Schweppes shares were up 4 percent to 626.50 pence at 15:20 GMT today, giving the company a market capitalisation of £13.1 billion.