Cadbury Sets Date for Dr Pepper Demerger
Shares in the confectionery giant jumped by 4% yesterday, up 21.5p to 561p, after Cadbury unveiled a timetable for the spin-off with the completion date set for May 7, provided it gets shareholder approval.
Last week, a note from U.S. broker Bear Stearns heightened fears that tighter credit markets could lead to the demerger being delayed or even derailed all together due to concerns the company would be unable to take on more debt.
However, Cadbury, which has seen sales of chocolate soar on the back of its hugely successful drumming gorilla ad, yesterday announced that it had agreed debt facilities with five banks -- JPMorgan Chase, Bank of America, Goldman Sachs, Morgan Stanley, and UBS Securities. Due to the uncertainty in the credit markets, Cadbury has secured definitive credit agreements from the banks instead of the usual commitment letter.
The U.S. drinks division, which will be known as Dr Pepper Snapple Group (DPSG), will be listed on the New York Stock Exchange on May 7. Cadbury, the maker of Dairy Milk and Trident gum, will list on the London Stock Exchange on May 2. A shareholder meeting to agree the separation is scheduled for April 11.
Cadbury said it expects its remaining confectionery business and DPSG to have investment-grade credit rating from Standard & Poor's. Cadbury will keep all of the debt of Cadbury Schweppes and will have net debt of £3.2 billion ($6.4 billion) just before the split, while DPSG's borrowing facilities will be used to pay some of that back. Following the demerger, Cadbury plans to have £1.65 billion ($3.3 billion) of net debt, while DPSG will have net debt of £1.9 billion ($3.8 billion).
Cadbury said the drinks group will not initially pay a dividend.
Investors and analysts welcomed the end to uncertainty. David Hallam, an analyst at Evolution Securities, said, "Investment-grade capital structures are in place which will enable the demerger to go ahead." Graham Jones at Panmure Gordon said that although there will be concerns about the demerger process, "we believe there will be more domestic U.S. funds buying than U.K. domestic funds selling, and we see any weakness on this basis as a buying opportunity."
In February, Cadbury announced it would not return any cash to shareholders following the demerger. Chief executive Todd Stitzer said the lack of a cash return was due to the decision to maintain both companies on investment-grade ratings. Analysts had been pencilling in a 20p-per-share payout. At the time, Stitzer said the confectionery division had delivered "excellent growth" in both gum and chocolate, with underlying sales up by 7% in 2007, partly due to the resurgence in Dairy Milk following the launch of its advert featuring a drumming gorilla. This went on to become the most watched advert online and sent Phil Collins's track "In the Air Tonight" to the top of the download chart.
From the March 17, 2008, Prepared Foods e-Flash