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Cadbury Schweppes: Capturing Confectionery (A)

Cadbury Schweppes was considering a bid for Adams, the number two player in the worldwide gum business and leader in sugar confectionery. Acquiring Adams would make Cadbury Schweppes the number two player in gum globally and give it a leading position in the growing sugar-free gum market. However, integrating the businesses could be complex, and Cadbury Schweppes may have to bid over $4 billion to win, more than some analysts estimated Adams was worth. The decision posed challenges around meeting financial targets to pay off acquisition debt, managing brand performance issues, and diverting resources from existing businesses.

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Rubak Bhattacharyya
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889 views

Cadbury Schweppes: Capturing Confectionery (A)

Cadbury Schweppes was considering a bid for Adams, the number two player in the worldwide gum business and leader in sugar confectionery. Acquiring Adams would make Cadbury Schweppes the number two player in gum globally and give it a leading position in the growing sugar-free gum market. However, integrating the businesses could be complex, and Cadbury Schweppes may have to bid over $4 billion to win, more than some analysts estimated Adams was worth. The decision posed challenges around meeting financial targets to pay off acquisition debt, managing brand performance issues, and diverting resources from existing businesses.

Uploaded by

Rubak Bhattacharyya
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 5

CADBURY SCHWEPPES: CAPTURING

CONFECTIONERY (A)

Introduction:
 In October 2002, Sir John Sunderland, chairman and CEO of Cadbury
Schweppes and have to take a decision for considering a bid for Adams
 Over the previous decade, the company had made several acquisitions to
complement its portfolio of chocolate, soft drink, sugar confectionery like
candy and gum.
 Now it was considering a bid for Adams, the number of two player in the
worldwide gum business and also the halls line, leader in sugar
confectionery.
 After researching the acquisition for many months, his Chief Strategy
Officer Todd Stitzer and the Adams deal team were approaching the point
of no return.
 Cadbury Schweppes have to bid more than $4 Billion any chance of
winner Adams

Internal Case Analysis:

Schweppes was the 3rd competitor after Coca-Cola and PepsiCo and Cadbury
was 4th in global chocolate business.

Cadbury had a significantly higher cost of the factories (98 manufacturing and
bottling plants in the U.S) as compared to their peer.

Canada Dry and Sunkist on 1986, Dr. Pepper and Seven-Up on 1995, Orangina
2001; and non CSD brands.

Cadbury Schweppes had been managed as a decentralized company. In 2002 they


had 98 manufacturing and bottling plants: 62 plants made confectionery and 36
bottled beverages.
Cadbury Schweppes as a beverage company is present in North America, Europe
and Australia. The acquisition of Dr. Pepper and Seven-Up the business had
increased steadily but they had lost market share over the previous two years, some
analysts argued that Cadbury Schweppes had been underinvesting in its brands and
they failed to innovate.

Adams Analysis:

 Founded in 1962 by Thomas Adams of Warner-Lambert a Pharmaceutical


company.
 Develop Trident White and recaldent
 Launched body Smarts in 2001
 After 1990’s Warner-Lambert Diverted resources for Adams and reduced
its sales force to focus on its core pharmaceutical business.
 By 2002 there were 3 main gum brands Trident, Dentyne and Bubbas by
Adams 22 production facilities, 12.9K employees. Adams had 8 regional
Organizations, 5 functional departments.

Advantages and Disadvantages of Acquiring Adams:-

 Advantages
1. Cadbury Schweppes will attain Number 2 Position.
2. Sugar free gum sector growing at 7% from 1998-2001

 Disadvantages
1. Adam’s Operating margin fell from 19% in 1994.
2. Confectionary declined in operating Margins from about 13% in
1998 to 12% in 2002

Page 02
(ADAMS) SWOT Analysis:

Strengths:

 Strong mind-set: “Think Global, act local”


 They know a lot about the Cadbury Schweppes interested in
Adams in 1990’s. Deep knowledge.
 Facilities configured to take advantage of economies of scale.
 Pfizer wants to sell Adams has a sales force of 4,500 people
worldwide who regularly called 1.5 million retail outlets.
 Adams is the 2nd in worldwide gum market (18.2%) and the 2nd
in the US gum market (24.3%).

Weakness:

 Both Cadbury and Adams Faced decrease in their operating margin


since 1999.
 Deterioring performance of some brands of Adams.
 Adams’ sugared gum know a deterioration higher than the
market’s competitors ones.
 Strong potential bidders: Nestle, Mars, Kraft, Pepsico and Hershey.
Executives felt Cadbury Schweppes had less than 25% change to
win Adams.
 Factory costs are 4% higher than its competitors.

Opportunities:

 Take possession of large pattern and knowledge of Adams


 Cadbury Schweppes with Adams would be worldwide 2nd place in
gum producing.
 Take control of the sugar free gum market which has an important
margin and market growth 7%.
 Adams’ employees prefer Cadbury Schweppes as purchaser. They
could put pressure to the company to accept Cadbury Schweppes
offer.

Page 03
Threats:

 Integrating Business is much more complex than initially believed.


 Cadbury and Adams both face really strong competitors
 Inherent risk in the acquisition of a company with huge financial
target justify the price.
 Adams sugared gum have been deterioring at an average rate of
16.5% overall market decline it have been 6.2%
 Cadbury Schweppes would have to bid between $4.1 and $4.3
billion to have an opportunity to get Adams. Analysts estimated
Adams worth between $3.0 and $3.5 billion.
 If they lose the bid possibility of being destroyed by the leader-to-
come.

Decision Dilemma:

The chief strategy officer “Tord Stilzer”, he was responsible for making
the strategy for acquisition of Adams. The interest of Cadbury Schweppes to buy
Adams is to gain positions in chewing gum sector. Gum sector allows big margins
20% that is only one other big player, it growing fast and it looks 7% attractive
for its health benefits.

After acquisitions there will be derive of 45% overall sales from previous
35%, increased sales in the combined Americans operations and unexpected
increased sales of confectionary in the developing market.

Adams trident is a sugar free gum and is currently the market leader
in Sugar free gum Market, as people are keeping mind their health issues, the
sales of Sugar free gum will increase in future. In the bid, Wrigley won’t be
taking part and Nestle cannot have a stronger position because they don’t have
any prior knowledge of gum sector, so there are more chances of Cadbury to win
the bid

In my opinion Cadbury Schweppes should give our decisions of Acquiring


Adam early to avoid future issues. Cadbury Schweppes have to close the deal
with Pfizer to buy Admas.

Page 04
Challenges:
 Large Financial targets to be met to pay off the debt and Increase
in competition and confectionery categories.
 The deteriorating performance of some brands may indicate that
Adams is not as good as business as initially thought Cadbury
Schweppes would be overpay for the business to acquire.
 Excessive amount of management time diverted from existing
businesses.

Page 05

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