New Bottling Deal With Coke Boosts Cadbury

Shares in Cadbury Schweppes, the UK soft drink and confectionery company, jumped 52½p to 685p on Wednesday after Dr Pepper-Seven Up, its US soft drink arm, secured a new bottling and distribution agreement with Coca-Cola Enterprises.

Under the deal, Coca-Cola Enterprises, the biggest soft drink bottler in the US, will continue to make and distribute Dr Pepper branded drinks until at least the end of 2005, extending the existing contract by five years.

Dr Pepper-Seven Up is the third largest US soft drinks company but has no bottling or distribution capacity of its own. Its products are made up and sold by Coca-Cola or Pepsi-Cola bottlers or by independent bottling companies.

 

Analysts welcomed positive news on an issue that has dogged the share price for the past 18 months. The City had feared Coca-Cola or PepsiCo might ditch Dr Pepper, Cadburys leading brand in the US.

The news scotches one of the bears strongest suits in London, said David Lang of stockbroker Henderson Crosthwaite. Another described it as a very public vote of confidence by Coca-Cola in the Dr Pepper brand and called Cadbury a working partner rather than a competitor.

But one analyst was surprised at the extent of the share price rise. At the end of the day the agreement only covers 10 per cent of the groups soft drink volumes in the US - so its not as though this has dealt with worries about overall volumes.

Coca-Cola Enterprises is a separately quoted company 45 per owned by Coca-Cola. It distributes about 20 per cent of Dr Pepper branded drinks and 11-12 per cent of Dr Pepper-Seven Ups total output.

Under the deal, it will continue making and selling certain other Dr Pepper-Seven Up branded drinks, including Schweppes, Canada Dry and Squirt, until at least the end of 2001, extending the existing contract by three years.

The 7-Up brand is not included because it is not distributed by Coca-Cola Enterprises.

Although the deal provides Dr Pepper-Seven Up with an important outlet for its products, it comes when the company is thought to be trying to buy one or more independent US bottling companies as part of a plan to build up its own distribution network.

Under the present arrangement, Dr Pepper-Seven Up is at a disadvantage in the US because Coca-Cola and Pepsi-Cola bottlers, which distribute about 56 per cent of its output, encourage their customers to buy Coke and Pepsi products rather than Dr Pepper-Seven Ups.

Rumours about possible acquisitions by Dr Pepper-Seven Up has focused on two large Midwestern bottlers that already bottle the companys products: Beverage America, based in Holland, Michigan, and Select Beverages, based in Darien, Illinois.

Analysts believe that if Dr Pepper-Seven Up builds up an independent distribution network, it will be as a precursor to spinning it off as a semi-independent

Shares rise after US soft drink arm signs new agreement, report Richard Tomkins in New York and David Blackwell in London