Cadbury's £198m bottling deal sparks talk of spin-off

Cadbury Schweppes appeared to move a step closer to breaking itself up yesterday when it unveiled a £198m deal to take control of the Dr Pepper/Seven Up Bottling Group.

The deal to buy the 55 per cent stake in BG that it does not already own gives Cadbury Schweppes greater control of its US drink distribution business and could pave the way for a demerger.

Analysts welcomed the deal, which should help the drinks company do more business with retailers, but they noted that speculation that it will spin off the chocolate company would now grow.

Graham Jones, of Panmure Gordon, said: "Today's step makes that endgame for Cadbury more likely."

Cadbury Schweppes paid the US private-equity house Carlyle Group $353m (£198m) for its stake in BG. It says the deal will help it compete more strongly against Coca-Cola and PepsiCo in the US.

At present, about half of Cadbury's fizzy drinks are distributed through bottling groups in which rivals have a stake.

Cost savings of £35m a year are expected - money that can be spent on promoting sales of core brands, Dr Pepper in particular.

Cadbury Schweppes' chief executive Todd Stitzer said the deal "gives us greater control over the distribution of our brands, improved operating efficiencies and customer service and greater access to faster-growing water and energy drinks".

The company was trying to play down talk that it is planning a demerger any time soon. A spokesman for Cadbury Schweppes said: "There is nothing to read into our future strategy from today's deal. We have done this because it is the right thing for our beverage business and will help it continue to grow."

Analysts suggest that 2008 is a likely time for the company to take a serious look at a spin-off.

Cadbury Schweppes also announced that it is buying the All American Bottling Group, the third largest independent US bottler, for $65m.

It plans to spend a further $200m in the next two years buying more US bottling companies as part of the same strategy. Mr Stitzer said: "We deal with too many bottlers which contributes to high costs and inefficiency."

Cadbury Schweppes sold its European soft drinks arm in November for £1.3bn, leaving it to concentrate on sweets and the soft drinks market in the US.

The company, which is best known for chocolate bars such as Flake and Crunchie, overtook Mars this year to become the biggest seller of confectionery in the world. The company employs more than 50,000 people across the globe, including 7,000 in the UK.

Cadbury Schweppes' shares fell 2p to 564.5p yesterday.