Cadbury Drinks Unit May Go From Sale to Spinoff

Plans for a sale of the Cadbury Schweppes Americas Beverages unit to private investors appear to have hit a roadblock due to turmoil in the international debt market.

As a result, the drinks unit may conduct a demerger instead – in other words, it would spin off the U.S. drinks business into a separate company, although it is likely there would be joint ownership of some stock, much like the Coca-Cola Co. and Coca-Cola Enterprises, its bottling arm.

Pushed by activist investor Nelson Peltz, Cadbury Schweppes had been taking bids on the drinks business for several months. But the two major bidding partnerships, each led by private buyout groups, saw their available funding recede as banks have tightened their lending terms.

That made for a decrease in the potential sale price of the CSAB unit – initially anticipated at about 7.5 billion British pounds — of nearly 14 percent.

Cadbury had been operating on the principal that the drinks arm would be spun off one way or another and had been following parallel tracks, according to the Times of London – and would likely still sell it to a private equity group if one could pony up enough cash to make the deal work.

But it’s a bad time for private equity: with a sub prime mortgage crisis leading to uncertainty with regard to debt repayment, banks are slowing their large-scale lending to a trickle for the risky deals that characterize that market.

If the demerger takes place, the brands included in CSAB – including Dr Pepper, 7-Up and Snapple – would remain important assets that could be targeted by interested buyers like Coke.