Asahi plans to buy Cadbury's drinks unit

Asahi Breweries Ltd., Japan’s top- selling beermaker, agreed to buy Cadbury Plc’s Australian beverages unit for A$1.185 billion ($808 million), adding the Schweppes soft-drink brand as domestic beer sales decline.

Tokyo-based Asahi will also gain the Cottee’s cordial and Spring Valley fruit juice labels as a result of the acquisition, which it plans to fund from cash and new bank borrowings, the company said today in an e-mailed statement. The transaction will complete Cadbury’s transformation to a dedicated confectionary maker after May’s spin-off of its US soft-drinks unit.

Japanese brewers are expanding into soft drinks and seeking overseas acquisitions as beer sales drop at home. Asahi had expressed an interest in buying Groupe Danone SA’s Australia and New Zealand drinks unit Frucor, which was sold to Suntory Ltd. in October for more than 600 million euros ($840 million).

“We have been constantly pursuing investment opportunities to enter into the promising new markets in the soft drinks sector worldwide,” Asahi said in the statement. “The acquisition of Schweppes Australia will strengthen our international soft drinks business and create a new platform for growth in Oceania.”

Cadbury, the world’s largest confectioner, said on December 16 that it planned to dispose of the division, which employs about 1,500 people and had revenue of about A$749 million last year.

The net proceeds will go toward repaying a 600 million-euro bond that matures in June 2009, the London-based company said today.

“They’ve realised a very decent exit price,” Martin Deboo, an analyst at Dresdner Kleinwort in London, said in an interview. “In the current climate, it’s a positive move that will allow them to reduce net debt by around one quarter.” Deboo has a “hold” recommendation on Cadbury shares.

The transaction is subject to a so-called right of negotiation granted to Coca-Cola Co. by Cadbury in 1999, which gives the world’s biggest soft-drink maker rights to negotiate a purchase of Schweppes Australia until March 2009. If Cadbury and Coca-Cola do not enter into an agreement, the sale to Asahi will be completed by April 30, according to the statement.

Schweppes Australia is the country’s second-largest non- alcoholic drinks maker and had gross assets of A$636 million in the year ended December 31, 2007, Asahi said.

Rothschild and Nomura Holdings Inc. acted for Asahi on the transaction, while Cadbury was advised by UBS AG.