Sweet Like Chocolate
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After nearly a year of deliberation, Cadbury has finally announced a date for the de-merger of its US soft drinks arm, American Beverages. Although it appears to make sense to separate this group from the companys confectionery operations, the separation could leave Cadbury vulnerable to a takeover, which its turnaround plan may be unable to prevent.
The de-merger, which was first announced as a possibility back in March 2007, will now take place in May and will see the creation of Dr Pepper Snapple Group as a separate entity with a listing on the New York Stock Exchange and its own management team. The confectionery arm is to be renamed Cadbury plc and will be listed in London.
The de-merger has taken so long to initiate due to the crisis in the credit markets. Originally, Cadbury had wanted to sell the soft drinks business, but a lack of interest from cash shy investors forced it to split the business instead.
With the beverage arms main competitors being American, and the confectionerys British, it makes sense to separate the two divisions. The company markets soft drinks such as Snapple, Dr Pepper and 7Up, which compete directly against the Coca-Cola and PepsiCo brands.
However, critics have pointed out that the de-merger will leave Cadbury plc vulnerable to takeover, with confectionery giants like Hershey and Wrigley, as well as Kraft, deemed possible contenders for the company. This is not least because Cadbury has struggled to regain momentum after a difficult 2006. A salmonella outbreak at a UK factory led consumers to shun the brand, and profits to fall. Only the popularity of its recent TV campaign featuring a drumming gorilla has given the confectionery maker hope of a profit boost.
Rising raw material costs have also hit the company; Cadbury expects costs to increase 5-6% in 2008, leading to an expected GBP0.07 ($0.15) price hike to be initiated on its