Cadbury signals intention to sell Schweppes

Posted by Daniel Palmer on 17th December 2008

Cadbury announced overnight that it plans to sell their beverage division, Schweppes, in Australia.

The official announcement was made as the company reconfirmed guidance of strong growth for their year. They noted, however, that Asia Pacific operations had performed well in spite of the “weaker trading in Australia” – which had been expected.

Rumours of a sale have been circulating since May following the demerger of Cadbury-Schweppes in the US, which left Australia as the only country where Cadbury’s confectionery and beverage units were combined. The company announced a review of their Australian operations in July and have now decided that a sale would be the best way forward for the company.

“At the time of our interim results we announced an intention to review the position of our Australia Beverages business,” Cadbury advised in a statement. “As a result, we have decided to proceed towards a sale of this operation. The separation of the integrated beverage and confectionery businesses in Australia is now well advanced and we will update the market on further developments in due course.”

And now attention turns to possible bidders. Coca-Cola Amatil CEO Terry Davis declared an interest earlier this year, though their market leadership position dictates that regulatory approval may be hard to get. They made a $1.85b play for Schweppes about a decade ago, but were consequently foiled by the competition watchdog. CCA could argue that the market is now more fragmented now, analysts suggest, but they may need to be willing to sell some brands to get approval. Another company that has been linked to Schweppes this year is Kirin Holdings, the owner of National Foods. They could possibly make a play for Schweppes via Lion Nathan, a company they have a 46 per cent stake in. Lion Nathan made a $8b offer to Coca-Cola Amatil last month but have failed to convince CCA about the value of the deal and Schweppes could therefore prove the next best option for expansion beyond alcohol products. Kirin could also make a bid with National Foods, which purchased Dairy Farmers earlier this year.

Other companies that could make a bid for Schweppes include Japan’s Suntory, which purchased Frucor, Japanese brewer Asahi and Singapore’s Fraser & Neave – both of which were reportedly interested in buying Frucor.

Despite the financial turmoil around the globe, Australian and New Zealand beverage businesses have commanded strong takeover interest this year, with Dairy Farmers and Danone’s Frucor both attracting a number of suitors and eventually buyers that were prepared to pay a P/E multiple of around 13 times earnings.

The ACCC continues to monitor the sale process.