The Telegraph
Since 1st March, 1999
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Cadbury to pay $ 4.2 bn for Adams

London, Dec. 17 (Reuters): Britain’s Cadbury Schweppes Plc said on Tuesday it had agreed to buy US sweet maker Adams for $ 4.2 billion in cash to make it the global joint leader in confectionery and number two in chewing gum.

The London-based company said the purchase from drug maker Pfizer Inc. would be debt financed, with no recourse to a rights issue, and added that cost and revenue benefits from the Adams acquisition would reach $ 185 million in 2006.

Cadbury, with brands such as Dairy Milk chocolate, Trebor mints and Hollywood and Dandy gum, will gain Adams’ Trident and Dentyne chewing gums, Bubblicious bubble gum, Halls cough drops, Certs mints and Clorets breath fresheners.

The deal will make Cadbury the market leader in functional confectionery, such as gums and refreshing products, in which growth is double that of the overall confectionery market, and greater scale in new markets such as Latin America. Functional confectionery purports to offer a health benefit.

“This is a reasonable price, and a good strategic move,” said analyst Michael Landymore at Investec Securities. “The market is comfortable with the kind of savings Cadbury can make.”

Cadbury shares were down 0.6 per cent at 407 pence by 1026 GMT.

The stock has outperformed the FTSE 100 blue chip index by 25 per cent in the last year but has been largely in line with the DJ Stoxx European Food and Beverage Index.

Chief executive John Sunderland said the focus of Adams was on breath fresheners, sore throat remedies and tooth whitening gum, which were all set to continue to grow strongly.

“These functional areas are broadening and increasing all the time. There is great potential on a global basis for this relatively untapped area,” Sunderland added.

Still, credit rating agencies Moody’s Investors Service and Standard & Poor’s both cut Cadbury’s long-term debt ratings by three notches, saying the deal would lead to a deterioration in Cadbury’s debt-protection measures. Both rating agencies also cut the firm's short-term creditworthiness.

Industry analysts also said Cadbury needed to turn Adams around after its profits fell over the last six years and margins tumbled. Though functional confectionery is growing, Adams has under-performed, they said.

“Strategically we cannot fault the acquisition, but Adams under the ownership of pharmaceutical companies has under-performed a fast-growing market and Cadbury has its work cut out to turn it around,” said one fund manager.

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