Cadbury Schweppes selling soft drink unit, looking for new strategy

Mumbai: Cadbury Schweppes PLC, the world's largest confectionery company, is hiving off its soft drinks business in North America in an auction that could net Cadbury as much as $16 billion. Private equity players are dominating the auction, which is expected to be valued at around £8 billion ($15.8 billion).

The Plano, Texas-based business has attracted bids from a consortium of Bain Capital LLC, Thomas H. Lee Partners LP and TPG, while a second team includes Blackstone Group LP, Kohlberg Kravis Roberts & Co. and Lion Capital LLP, according to a source familiar with the process. Morgan Stanley, UBS and Goldman, Sachs & Co. are handling the auction.

Lion and Blackstone, which bought Cadbury's continental European beverages business for £1.3 billion in February 2006, have long been seen as likely bidders.

Analysts say the proceeds from the sale, which the company is expected to retain, could be used to fund an aggressive expansion of its confectionery business. What comes afterward could shake up the American candy business, they say.

This has led to speculation about potential takeover targets. The company, for example, could be interested in looking at the Hershey Co. of Hershey, Pa., or Chicago-based Tootsie Roll Industries Inc., said one report.

Analysts say Hershey is a very attractive target for Cadbury as the two fit well together, while less attractive, Tootsie Roll would also fit well with Cadbury's products.

Other reports, meanwhile, said Cadbury could just as well find itself a target. Northfield, Ill.-based Kraft Foods Inc. has been searching for a 'transformative' acquisition since Irene Rosenfeld was named chairman and CEO.

"A Cadbury deal would not only add to Kraft's international exposure but also further its participation in the higher growth (business), less vulnerable to private label categories of chocolate and gum," reports quoted an analyst with Bear Stearns & Co. as saying.

Cadbury already has already announced the purchase of Intergum, a Turkish gum company, for nearly $500 million and the sale of Monkhill confectionery business, including its Butterkist popcorn. The firm is expected to announce cuts totalling as much as $593 million, including the closing of at least five factories.

But much of the speculation is on what Cadbury might do with the proceeds from a beverage unit deal, and both Hershey and Tootsie Roll could be vulnerable to a buyout.

Cadbury Schweppes, meanwhile, is set to slash 5,000 jobs across its confectionery business - around 10 per cent of its staff - according to reports.