MD writes...

To no great surprise Cadbury Schweppes announced today (1 September 2005) that they were selling - oops, sorry slip of the tongue - seeing if anyone was interested in buying their European beverages arm. The question I ask myself is, "why"? Say it louder chaps - "WHY?" By their own figures the business represents 10% of group revenue and 11% of group profits at an operating level (and enjoys better margins than the rest of the business). Well done chaps! Showing all the signs of a fee-driven City deal here.

Justifying the deal the company spouted wonderful double speak:

"The overriding goal is to deliver superior shareholder returns."

Fell at the first hurdle then, and:

"This is supported by two commercial goals which are to profitably and significantly increase global confectionery share and profitably secure and grow regional beverages' share."
And fell again at the second. Where is the "securing of regional beverages' share" in this deal?

Overall, Group operating margins were 14.4% at the half year 2005. The sale of a business with margins of 18% hinders Cadbury's efforts to improve on this. Nor will the deal do anything to maintain their position as the world number 3 carbonated soft drinks group: £650m of revenue does not grow on trees.

Bizarrely, up until last year Cadbury Schweppes were intent on growing this business. In 2001 they part-acquired Orangina; and in 2004 they acquired the balance of the business. So why the change of heart? Is the answer related to return on assets? Well, the business matched the group in 2004 (11.4% vs. 11.5%) so no.

In conclusion, a very bad deal which gives up strong margins and market share in key markets; and which loses all the upside of the new opportunities in the UK and elsewhere for Orangina (now they can market it in the UK).

But doubtless the future has been superbly conceived in some advising merchant bankers medium term plans: sell the worldwide beverages thus setting-up the rump up for sale to Nestle, Hershey or some such group.

PS: Note to City Editors - none of the above was hard to find or produce from Company supplied information. Please, get your acts together and start doing analysis and decent commentary rather than believing all the financial PR guff.

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