Cadbury Schweppes to Acquire Remaining Dr.Pepper/Seven Up Stake

25/04/06 Cadbury Schweppes has announced that it has agreed to buy the remaining 53% stake in Dr Pepper/Seven Up Bottling Group (BG) from The Carlyle Group for $334 million (£187 million). The world's largest confectionery group, which makes Dr Pepper and 7UP drinks in North America, forecast synergies of $120 million by 2010, with half that realised by 2008. The move will increase Cadbury’s stake in BG from 45% to 100%.

BG, which is the largest independent bottler in the US, had revenues of $2.0 billion and underlying EBITDA of $204 million in 2005. Based on a total enterprise value of $1,458 million, the deal represents a 2005 EBITDA multiple of 7.1 times. The acquisition will be financed from Cadbury’s existing resources.

Cadbury Schweppes said that the acquisition is expected to enhance its underlying earnings in 2006 and exceed its weighted average cost of capital in 2008. Value creation will be driven through a combination of cost and revenue synergies which are expected to reach $120 million by 2010. The transaction is subject to regulatory approval in the US and is expected to close in early May.

Total synergies are expected to be around $120 million by 2010 with around 40% delivered from cost savings and the balance from revenue synergies. Cost synergies of $45 million will be generated from consolidation of manufacturing facilities, joint procurement initiatives and commercial and back-office savings. Cadbury Schweppes expects all of the cost synergies to be delivered by 2008. Revenue synergies of $75 million will be weighted toward 2009 and 2010 and are expected to be generated from better strategic alignment of selling and promotional programmes, particularly to national accounts, and greater penetration of higher margin impulse channels.

The company said that the consolidating the manufacture and distribution of its beverage brands into three strong, cost effective scale systems - company-owned, Coke bottlers and Pepsi bottlers enables it to more effectively leverage its broad brand portfolio by simplifying interactions with retail customers. Meanwhile revenue growth will be enhanced by providing the additional funds to re-invest in its core beverage brands, notably Dr Pepper, and in accessing under-exploited higher margin convenience channels.