Cadbury Poised to Buy Bottler

Reportedly finalizing Dr Pepper/Seven Up Bottling Group deal

Published in CSP Daily News

LONDON -- Cadbury Schweppes is close to acquiring the Dr Pepper/Seven Up Bottling Group, the US's largest independent bottler, from the Carlyle Group, reported The Financial Times.

The acquisition, expected to be announced shortly, would give Cadbury greater control over the distribution of its U.S. soft drink brands, which include Dr Pepper, 7 UP and Snapple.

The deal's price tag is nearly 300 million British pounds (approximately $536.7 million U.S.), according to the report.

Cadbury has a 45% equity [image-nocss] stake in the bottling group, with most of the remainder held by Carlyle, a private equity firm. Cadbury and Carlyle bought the privately held group for $283 million in cash and $408 million in debt in 1999.

Cadbury declined to comment. The purchase will add to growing signs of change in the U.S. beverage industry, the report said, as soft drink companies rethink their relationship with the bottlers that produce and distribute their products.

Beverage companies are seeking greater consolidation among bottlers in response to mounting pressure from powerful retail chains, such as Wal-Mart, for suppliers to become more efficient, The Financial Times said. By gaining greater control of its distribution network, Cadbury could negotiate with retailers directly, it added.

About 24% of its carbonated drinks are distributed by the Dr Pepper bottling group, with much of the rest distributed through bottlers part-owned by Coke or Pepsi. Some analysts believe that combining its manufacturing and distribution operations may also make it easier for Cadbury to spin off its U.S. beverages arm and use the cash to make acquisitions in confectionery, said the report.

Although the U.S. beverages operations have been recording healthy growth over the past two years, and generate cash for Cadbury, the company has identified confectionery as its key growth business globally. Cadbury's claims to be the world's biggest confectionery company, with a market share of about 10%, putting it ahead of Mars, Nestl a and Hershey, said the report.

Cadbury has been diversifying away from chocolate confectionery in recent years and moving more heavily into sugar confectionery such as chewing gum, the report added. The company is keen to challenge Wrigley's dominance of the global gum market, which is the fastest-growing part of the confectionery market. Wrigley has a 35% share, while Cadbury holds 27%, according to the newspaper.