Cadbury Schweppes' Split Future Provides Focus

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Cadbury Schweppes' Split Future Provides Focus

04/16/2008
LONDON -- Last week, shareholders of Cadbury Schweppes voted to spin off the company's U.S. drinks division from its international candy making business, in an effort to boost shareholder value and allow the two
halves to sharpen competitive focuses on rivals including Coca-Cola, Pepsi, Nestle, Hershey's and Mars, BusinessWeek reported.

However, big challenges stand in the way of success for both companies. Without the diversified product ranges of its competitors, the chocolate, candy and gum business could become a takeover target for a rival such as Kraft Foods, the report stated.

Meanwhile, the new U.S. drink business, to be named Dr. Pepper Snapple Group (DPSG), must compete against giants Coca-Cola and Pepsi, and find ways to
exploit its noncarbonated brands such as Snapple and Mott's, according to the report.

"The jury is still out on whether the demerger of the U.S. drinks business will solve Cadbury's problems," Jeremy Batstone-Carr, director of private client research at stock brokerage Charles Stanley, told BusinessWeek. "The U.S. [beverage] market is moving in their direction, but both sides of the company face an uphill battle."

The drink business must battle with a change in customer tastes toward healthier fruit drinks, the report stated. Fruit-based drinks account for about one-fifth of the division's revenues and posted growth of 5
percent last year, while the larger carbonated drinks group grew just 1.3 percent, BusinessWeek reported, citing Citigroup.

"DPSG will have to invest aggressively in its drinks business to push its existing [fruit] brands forward," Batstone-Carr told BusinessWeek. "The company isn't well-placed financially to acquire other companies, so it will have to focus on organic growth."

In addition, the division will face heated competition from market leaders Coca-Cola and Pepsi, which have also targeted fruit-based drinks.

"You can't ignore the competition from Coke and Pepsi," Graham Jones, director of equities research at brokerage Panmure Gordon, told BusinessWeek. "DPSG is half their size and it could get caught in the crossfire when these bigger companies ramp up their [healthier drink] offerings."