Cadbury Changes Drinking Plans

Shares in Cadbury Schweppes were lower mid-morning after reports the company was now more likely to demerge its beverage business, rather than sell it, with Evolution Securities commenting that this reduces the company's valuation.

At 9.35 am, Cadbury shares were down 1-1/2 pence at 554-1/2 pence.

According to the Times today, the company has concluded that private equity will not be able to raise the funds amid a freeze on financing.

Last month, Cadbury said it was forced to delay the sale of its drinks arm, which includes Dr Pepper, Snapple and 7-Up, citing volatility in the credit markets. Sources say the deterioration in the credit markets in the last couple of weeks makes a sale impossible in the short term.

A sale to private equity would be worth more 7 to 7.5 bln stg, said the Times. It is still possible there could be a sale to a trade buyer, but this would be for about 1 bln stg less, the paper said.

Evolution Securities said Cadbury's valuation reduces to 580 pence per share if the report proves correct. While the stock would appear up with events on this valuation and on short term fundamental grounds, said Evolution, the new confectionery strategy should enhance earnings from 2008 and as a result the broker said it was retaining its 'add' recommendation and 650 pence price target.

An additional twist, said Evolution, is that, with the most likely listing for the demerged business being the US, many UK only funds will have to divest and may sell Cadbury stock before the demerger. Alternatively, it said, Cadbury could pursue an IPO in the US and still return cash to shareholders.