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LONDON -- Cadbury Schweppes Plc announced yesterday it plans to spin off its U.S. drinks unit -- maker of Dr Pepper, Snapple and 7-Up -- after a seven-month search for a buyer was derailed by faltering credit markets, the Associated Press reported.
Cadbury, the world's largest candy maker, said it would issue shares to its own shareholders and list the business on the New York Stock Exchange. However, CEO Todd Stitzer left the door open a crack to a potential sale should debt markets improve. "I think anything is possible in today's financial world," he told reporters.
Stitzer said that while a sale would have been closed "quickly and cleanly" and allowed for a large return of cash to shareholders, a spinoff "provides roughly the same amount of value." He did not disclose terms, the AP reported. Cadbury does not expect to complete the separation before the second quarter of 2008.
The future of the U.S. drinks business has been up in the air since earlier this year, when Cadbury came under pressure from investors led by U.S. billionaire Nelson Peltz to separate its beverage and candy arms. The company subsequently announced a "twin-track" process in March to determine whether to sell or spin off the unit, which generates more than 80 percent of its revenues and profits in the United States.
The company had been leaning toward a sale but indicated in August that a spinoff was the more likely option because of turbulent debt markets, the AP report said.
The restructuring will lead to 470 job losses, the company said.
Stitzer will remain as CEO of the candy arm, to be named Cadbury PLC. The American beverage business will be led by Larry Young, currently CEO of the bottling operation and formerly president and COO of Pepsi-Cola General Bottlers. The company has yet to decide on a name for the drinks arm, but Stitzer said it would not be Schweppes.
He also declined to comment on a Wall Street Journal report on Wednesday that said representatives of Hershey Trust, the charitable group that controls The Hershey Co., met with Cadbury in early September to discuss a merger, the AP reported.
The decision to spin off the drinks business leaves Cadbury to focus on increasing sales and margins at Dairy Milk chocolate and Trident gum. In its trading update for the third quarter, Cadbury said revenues at its confectionary business, which makes the products, rose 10 percent, bringing its year-to-date revenue growth to 7 percent, exceeding the company's full-year target range between 4 percent and 6 percent.