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Cadbury to cut jobs as drinks sale nears

Cadbury Schweppes PLC said Tuesday it plans to close 15 percent of its candy factories by 2011, cutting about 7,500 jobs, and will likely sell the U.S. unit that makes 7-Up, Dr Pepper and Snapple soft drinks.
/ Source: The Associated Press

Cadbury Schweppes PLC said Tuesday it plans to close 15 percent of its candy factories by 2011, cutting about 7,500 jobs, and will likely sell the U.S. unit that makes 7-Up, Dr Pepper and Snapple soft drinks.

The company had announced in March that it planned to separate its drinks and candy businesses — under pressure from investors led by U.S. billionaire Nelson Peltz — but had not indicated whether it would sell the beverage business or spin it off to shareholders.

While the company said Tuesday that it was still pursuing “a twin track process,” it appeared that the beverage business would be sold.

“The sale process is actively under way, and following expressions of interest, we now believe that a sale is the more likely outcome,” the company said.

A sale would be expected to yield 7 billion pounds to 8 billion pounds ($14 billion to $16 billion), said Jeremy Batstone-Carr, analyst at Charles Stanley in London.

Cadbury, which employs about 50,000 people in its candy and gum business, has 35 confectionery sites across Europe, the Middle East and Asia, and 59 other bottling and manufacturing sites worldwide.

Friday was the deadline for expressions of interest. Private equity groups and the Canadian bottler Cott Corp., which makes private-label soft drinks for retailers like Wal-Mart Stores Inc., are thought to be among the possible bidders.

Calls to Peltz’s Triarc Companies Inc. in New York weren’t immediately returned Tuesday.

“It’s a very cash-generative business. All that Cadbury said was they’re running a dual-track process,” said Charlie Mills, analyst at Credit Suisse in London, when asked to speculate on would-be suitors. He said the notion that venture capitalists might jump into the process made sense.

Jonathan Feeney, an analyst with Wachovia Capital Markets, said the announcement was better than expected.

While disappointed that the company didn’t have a completed deal to announce for the U.S. business, he said the company’s comments that a transaction is imminent means the operations will likely fetch something in line with numbers that have recently been mentioned, roughly $15.8 billion.

Cadbury Schweppes shares fell 0.9 percent to 700 pence ($13.87) on Tuesday in London.

“The absence of a definitive buyer for the U.S. beverages business and timetable for disposal and return of proceeds to shareholders” could be tempering the share reaction, Batstone-Carr said.

Cadbury, which also has products such as Dairy Milk chocolate and Trident Gum, had been under increasing pressure to revert to its origins as a confectionery company by spinning off the U.S. drinks business, particularly since it sold its European soft drink unit in 2005.

Its March announcement came just days after the company revealed that Peltz’s investment vehicle Trian Fund Management had taken an almost 3 percent stake. Peltz has a record as a shareholder activist, buying up stock in companies he sees as undervalued, then agitating for change. He took a 5.5 percent stake in ketchup maker H.J. Heinz Co. last year and subsequently won a seat on the company board after a bitter proxy battle.

Cadbury Schweppes said Tuesday that after the sale of the beverage business, it would be renamed Cadbury PLC and would aim to raise margins to the mid-teens by 2011, compared with 10 percent last year.

Restructuring will result in a charge of 450 million pounds ($890 million), and the company said it plans capital investments of about 200 million pounds ($396 million) over the next three years.

“Our cost reduction initiatives will impact all parts of the group, in sales, general and administration costs and supply chain, in the regions and at the group center,” the company said.

Unite, the union which represents 2,000 Cadbury Schweppes workers in Britain, said the announcement was worrisome.

“We have worked hard with Cadbury in recent years and cooperated in a change program which means the U.K. factories are extremely efficient,” said union official Brian Revell. “We are, therefore, concerned by today’s announcement, which we are convinced is driven by the threat of a takeover by private equity.”

The company also announced confectionary revenue in the first quarter rose 9 percent, led by a 15 percent gain in the United States and Latin America.