Confectioner and beverage maker Cadbury Schweppes PLC said Thursday it plans to sell its European beverages business as it focuses on more profitable lines, including operations in the United States.
The company, the producer of Dr Pepper, Mott’s Apple Juice, Dairy Milk chocolate and Trident gum, didn’t say how much it would seek for the unit, but analysts said it could likely fetch more than 1 billion pounds ($1.8 billion).
The London-based company said its board of directors reviewed its business lines and found it better to focus on units that could have a greater potential for growth and profit.
“Europe Beverages has a great portfolio of brands, a talented management team and strong routes to market,” said CEO Todd Stitzer. “However, the potential for growth and value creation is greater in the group’s other operations, and therefore we believe it is in the best interests of our shareowners to investigate a sale of the business.”
Proceeds from the planned sale will go toward paying down the company’s net debt, which is currently at 3.4 billion pounds ($6.1 billion)
Analyst Richard Workman of Oriel Securities called the decision a “perfectly logical move,” adding a likely buyer would probably be a private equity firm.
Shares of Cadbury Schweppes rose 2.6 percent to close at 561 pence ($10.11) on the London Stock Exchange.
Cadbury has been pushing a cost-cutting program since mid-2003 to respond to tough market conditions and try improve growth. Under the plan it has closed 10 percent of its 133 factories worldwide and reduced its work force by 10 percent. Cadbury employs more than 50,000 people worldwide, with about 7,000 in Britain.
In July, the company posted a 6.1 percent increase in first half-net profit to 244 million pounds ($439.9 million), driven by strong sales, and said it expects to meet its full-year targets despite challenging markets. Sales increased to 3.13 billion pounds ($5.6 billion) from 2.95 billion pounds.
Cadbury said it expects to face increased competition in the U.S. beverage market from Coca-Cola Co. and PepsiCo Inc. in the second half, along with continued high oil costs and political uncertainties in developing markets. About 20 percent of Cadbury’s revenues come from developing markets.