Cadbury builds up gum, candy holdings
Even as Cadbury-Schweppes looks like to get out of the beverage business by selling off its US operations, it is strengthening its position in the confectionary market. Once again, it's a case of playing to strength. Cadbury is #1 worldwide in confectionaries, while it is a far-behind #3 in US beverages. It sold its European beverage divisions in 2005 to a private equity consortium headed by Blackstone Group, and Blackstone is one of the current suitors for the US beverage business.
The auction of its drinks business will give the company some $15 billion, money it is already spending to enhance its worldwide confectionary business.
It recently announced the purchase of Turkish company Intergum in a $450 million deal. The move will give Cadbury almost half of Turkey's chewing gum market.
According to the Financial Times ("Cadbury in Turkey gum acquisition", 6/7/07), while Cadbury has ad a bad year (in part because of salmonella outbreak in some its chocolate lines), it has been growing its chewing gum business.
Gum has been one of the better performers in the product portfolio. Cadbury launched its Trident and Dentyne brands in the UK this year, seeking to take market share from Wrigley, whose Extra and Orbit brands dominate the market. Cadbury holds the number two position in gum globally, with a market share of about 26 per cent following its acquisition of Adams, the US company, in 2003.
Soon after, Cadbury announced it would acquire Romania-base d Kandia-Excelent, one of the leading chocolate and biscuit companies in hat country. Ina $129 million deal).
Cadbury with the buys will have around a 20% market share in Romania, behind Wrigley, but ahead of Kraft, according to the Financial Times.
Meanwhile, news is strong of deal between Cadbury and France-based Barry Callebaut, in which Cadbury would distribute Callebaut products, including a major share of industrial (bulk) chocolate, and several lines of retail chocolate (Van Houten, Stollwerck, Alprose, and Brach's brands among others.
Among other potential targets are US-based Hershey Foods and US-based Tootsie Roll. The Hershey deal is a natural one - it has 45% of the chocolate market share in the US, and it already distributes Cadbury-branded chocolates in the US. Note however, that the Hershey Trust, a charity, which controls voting stock in Hershey, blocked an earlier attempt by Wrigley to buy the company. But Cadbury should have the money to make an offer they can't refuse.
But the acquirer, as it often happens, may just be fattening itself up for acquisition, according to a Chicago Tribune story ("Cadbury hungry to grow?", 6/16/07).
But Cadbury could just as well find itself a target. Northfield-based Kraft Foods Inc. has been searching for a "transformative" acquisition since Irene Rosenfeld was named chairman and CEO.
Terry Bivins, an analyst with Bear, Stearns & Co., has said: "A Cadbury deal not only would add to Kraft's international exposure but also further its participation in the higher-growth [business], less-vulnerable to private-label categories of chocolate and gum.
Kraft currently gets around 10% of its revenue from candy (Toblerone, Milka, Suchard, Altoids, Life Savers, and others). The additions of Cadbury would make it a wholly dominant force in the industry.
In any case, Cadbury is shaking up the industry, and all players have to feel threatened enough t start looking at buying and selling as well.
