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Last Updated: Wednesday, 14 March 2007, 20:08 GMT
Cadbury plans to split business
Cadbury
Cadbury Schweppes is behind many household brands
Cadbury Schweppes is planning to split itself up into two separate businesses, the BBC's business editor Robert Peston has learned.

One of the divisions will focus on chocolate and confectionery while the other will concentrate on its US drinks business - which includes Dr Pepper.

Splitting into two distinct companies could dramatically increase Cadbury's value - perhaps by 3.4bn.

It may also become easier to manage after suffering a spate of problems.

The announcement of the move may come as early as Thursday.

Victory?

Shares in Cadbury Schweppes have risen 10% this week, after US businessman Nelson Peltz bought a stake in the firm, sparking takeover speculation.

The decision to demerge its US drinks business may look like a victory for Nelson Peltz
Robert Peston
BBC Business Editor

The decision to demerge its US drinks business - which owns famous brands such as Dr Pepper and Canada Dry - may look like a victory for the Nelson Peltz

Mr Peltz has made no secret of his desire to see the drink business demerged from the chocolate-to-chewing gum division.

But Mr Peston says that, while Cadbury's plans may be seen as a victory for the businessman, the confectioner is adamant that there have been preparations for such a step for several months.

Analysts believe that the beverage business may be worth up to 7bn as a separate entity, while the chocolate and chewing gum operations could be worth an estimated 9bn.

This compares very favourable with Cadbury Schweppes's current market value of about 12.6bn, Mr Peston added.

If all goes to plan, Cadbury shareholders will own two shares for every one they currently hold, one in the core confectionery business, the other in the US soft drinks operation.

However financial preparations for the break-up will take time and the demerger may not be completed till the autumn.

'Questions raised'

In recent months, the company's confectionary division has suffered a string of setbacks.

Thousands of chocolate bars were taken off the shelves in the UK after the Food Standards Agency learned that traces of salmonella had been found in some chocolate bars.

Also batches of Easter Eggs have been recalled because they were not labelled as being unsuitable for those with nut allergies.

Cadbury's has also said that the financial position of its Nigerian operation had been overstated.

"These difficulties have raised questions about whether the combination of drinks and beverages in a single entity had made the business harder to manage effectively," Mr Peston said.

Cadbury's is the third largest carbonated soft drinks group in the world by sales volume, behind Coca-Cola and Pepsi.

Its brands also include 7 Up while its chocolate range includes well-known bars such as Flake, Crunchie and Wispa.

The firm bought its US drinks business in 1995 for 1.8bn and in 2006 the division made profits of 584m.

The European beverage business, which included brands such as Orangina and Oasis, was sold to a private equity buyer for 1.2bn in early 2006 while the majority of its UK drinks operations were sold to Coca-Cola in 1999.

The Cadbury Group merged with Schweppes in 1969.


SEE ALSO
Cadbury shares fizz on US stake
13 Mar 07 |  Business
Cadbury planning investment drive
20 Feb 07 |  Business
Cadbury salmonella bill hits 30m
12 Dec 06 |  Business

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