Oct. 10 - Cadbury Schweppes has achieved something its customers aspire to: losing a pound. Shares of the British confectioner have fallen by roughly that much in London -- for a 15% decline -- since the summer's credit crunch put plans for a leveraged buyout of its U.S. soft-drinks business on ice.
Now, Cadbury has decided to spin off the maker of Dr Pepper and Snapple. That is a sensible decision -- and, in the long term, may even lead to two deals rather than one.
Floating that drinks unit in the U.S. next year beats selling to private-equity firms for less than the GBP 7 billion to GBP 8 billion ($14 billion to $16 billion) it initially looked like it could fetch. Blackstone Group and Kohlberg Kravis Roberts reportedly offered a highly conditional GBP 6.5 billion. The period before the spinoff -- expected mid-next year -- leaves time for buyout firms to regain their mojo if the credit markets improve. After the split, shareholders can decide for themselves the merits of any future offer.
Meanwhile, Cadbury gets more time to sort out its candy business, where, despite 10% sales growth, estimated profit margins of slightly more than 9% still lag behind those of competitors. Hershey, its U.S. rival and oft-rumored merger partner, is twice as profitable, while gum maker Wrigley is slightly more so. That is partly a function of Cadbury's presence in lower-profit-margin emerging markets. Still, boss Todd Stitzer has more to do to bring Cadbury up to the mid-teens levels enjoyed by rivals Nestle and Danone.
If Mr. Stitzer succeeds, another deal could emerge: a tie-up with Hershey. That would give Cadbury greater heft in the U.S. For now, Cadbury has no reason to do a deal at a premium. Hershey is losing market share and leans on its slow-growing chocolate business.
Besides, the trust that controls Hershey, though it has held talks with Cadbury, shows no intention of relinquishing control. But if Hershey shares continue their decline, the trust may yet develop a taste for British chocolate.