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Cadbury dilutes Coke deal
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May 24, 1999: 11:35 a.m. ET
Soft drink maker alters sale of non-U.S. businesses, citing regulatory obstacles
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LONDON (CNNfn) - Fearful that a more ambitious deal would face "unacceptable" regulatory delays, British beverage maker Cadbury Schweppes altered terms of the sale of its non-U.S. beverage activities to Coca-Cola Co. Monday.
After regulators in several countries warned that Coke would obtain a dominant position in soft drinks if the deal went ahead in its original form, the U.K.-based company reduced the range of activities included in the deal and slashed the price by more than 40 percent.
Under revamped terms revealed Monday, Cadbury -- maker of carbonated soft drinks such as 7-Up, A&W Root Beer, Canada Dry, Dr Pepper, and Squirt -- excluded its beverage businesses in European Union member states except for Britain, Ireland and Greece. It also reduced the proposed price of the businesses from 1.85 billion pounds ($2.96 billion) to 1.1 billion ($1.76 billion).
The revamped deal reflects an acknowledgment by both companies that the broader deal announced last December, in which Cadbury agreed to sell its non-U.S. beverage lines in 120 countries, faced mounting international opposition that threatened to take the fizz out of Cadbury's strategy.
Coke estimated it could grow the Cadbury brands at a rate of around 8 percent a year. Cadbury already is the third-ranked soft-drink company in the world, behind Coca-Cola and Pepsi.
But it was Coke's size that posed the greatest concern to regulators, who eyed Coke's already dominant global share with trepidation.
Cadbury sought to play down the significance of the revision Monday, insisting that the agreement still covers more than 100 countries, and that approval is expected "in a substantial majority" of them by July.
"The adjustments we have made to the transaction in no way diminish the validity of this strategy," John Sunderland, Cadbury Schweppes' chief executive officer, said Monday.
"We will still receive a significant cash sum whilst retaining our strong European soft drinks business. What we are doing removes uncertainty for our employees, for our bottlers and share owners, and ensures a swifter conclusion to the transaction."
Cadbury and Coke said they agreed on the reduced price after conducting "extensive research" into the issue of regulatory clearance.
"It was recognized that in the 20 or so countries where this was required it was likely to be a lengthy and complex process," Cadbury said.
"The companies have now concluded that regulatory resistance in certain countries within the European Union would probably result in unacceptable delay."
Mexico, Belgium and Australia already have expressed reservations about the deal. Germany's federal cartel office had threatened to scuttle the sale last week; its criticism was a factor in excluding most EU members from the revamped agreement.
Investors reacted positively to the announcement Monday. Cadbury shares were up more than 4 percent to 451 pence in London.
-- from staff and wire reports
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