December 18, 2007

The Board of Directors

Cadbury Schweppes plc
25 Berkeley Square
London W1J 6HB
UK
Dear Board Members:
Investment funds and accounts managed by Trian Fund Management, L.P. (collectively,
Trian) own interests in approximately 4.5% of the outstanding shares of Cadbury Schweppes
plc (Cadbury or the Company). Trian has recently increased its position from approximately
3.5% after forming an investment group with Qatar Holding LLC, a sovereign wealth fund. We
have increased our position because we continue to believe that Cadburys implied target
value per share could be as high as 970p, nearly 60% above the current share price, assuming
the Company successfully executes on the plans outlined below.
As you know, Trian has engaged in a regular dialogue with Cadburys management and
certain members of the Board for the past nine months and supports many of the Companys
announced plans. Trian is nevertheless concerned that recent management updates to
shareholders on the performance of the business seem to be followed by declines in the share
price. This was the case after last weeks trading update (the stock price has since fallen 32p)
and was also the case following the August 1 st release of interim results (the stock price fell
51p, the largest one-day decline in more than 15 years). We believe this trend signals that
managements credibility with the Companys shareholders is still very low.
Of course, the most important barometer of management credibility is how the market values
the shares in the context of managements operating and financial targets. If the Company
were to successfully execute its own previously announced initiatives, we believe the current
implied target value per share should be approximately 741p to 846p, depending on the
valuation multiples the market ultimately assigns to the beverage and confectionary
businesses (see Appendix I). Most of this potential value creation comes from managements
plan to increase confectionary margins by approximately 500 basis points to levels closer to
what most food companies achieve, reaching mid-teen margins by 2011. That the shares
continue to trade at a 22% to 39% discount to the values implied by managements plan

2007-2008 Trian Fund Management, L.P. All rights reserved.

suggests the market is skeptical and has discounted virtually any potential for margin
improvement.
Trian believes managements multi-year margin improvement initiative is readily achievable; in
fact, we view it as too little improvement over too long a time period . Based on this plan,
confectionary margins in 2011 would remain hundreds of basis points lower than what other
leading confectionary companies, including Wrigley and Hershey, currently achieve. Instead,
Trian believes Cadbury should be able to achieve mid-teen margins by 2009 and best-in-class,
or high-teen margins by 2011. By so doing, Cadbury can create substantial incremental value
for shareholders.
Trian believes the current management team and Board have made sound strategic judgments
in the past, including the acquisition of Adams and the recent decision to separate the
beverage and confectionary businesses. And notwithstanding various operational problems
that have arisen under the current leadership team, including salmonella issues in the UK,
fraud in Nigeria and under-deliverance on past margin targets, Trian continues to believe that
the current management team is capable of achieving its plan as well as the actions we are
proposing. However, should Cadbury fail to demonstrate meaningful operational progress in
2008 that translates to the bottom line, Trian will look to become significantly more active in
evaluating all of our alternatives as a large shareholder.
To fully restore credibility, we urge Cadbury to take the following specific actions that we
believe are critical to demonstrating that management is on track to deliver improvements in
the business and that the Board is committed to holding management accountable and
increasing shareholder value:
1. Set near-term margin targets for the confectionary business that demonstrate
meaningful improvement will be made beginning in 2008. Currently, the Company has
committed to improve confectionary operating margins from approximately 10% in 2007 to
the mid-teens by 2011. However, without specific 2008 margin targets, the Board cannot
hold management accountable and shareholders will continue to discount the potential for
any margin progress. We would suggest that full year 2008 guidance for confectionary
margins should target at least 175 basis points of improvement, given that much of the
groundwork for future cost reduction has been laid in 2007. Management should deliver
quarterly updates throughout next year confirming that it is on track to deliver on these
targets.
2. Increase medium and long-term confectionary margin goals to target achieving midteen margins by 2009 and high-teen margins by 2011. Trian believes managements
current goal of achieving only mid-teen margins by 2011 is unacceptable, as it produces
too little improvement over too long a time period. Based on our extensive due diligence on
Cadbury, as well as Trian and its principals track record of fixing operations at
underperforming companies, we see no structural impediment to Cadbury achieving
margins that are at least as high, if not higher, than its confectionary peers.
3. Continue cost reduction efforts and transformation of beverage business. Set a goal
to improve beverage margins at least 300 basis points by eliminating duplicative central

2007-2008 Trian Fund Management, L.P. All rights reserved.

costs, simplifying the organizational structure, executing on acquisition synergies and

extracting manufacturing and distribution efficiencies. We also believe that the Company
should consider divesting certain businesses following the spin, including Motts, Clamato,
ReaLemon, ReaLime and Roses. These businesses add manufacturing and operational
complexities, are distributed primarily through a different channel (grocery) than much of
the remaining portfolio but are nevertheless outstanding brands that we believe have
considerable market value.
4. Add several new directors to the Board with relevant industry backgrounds and
experience overseeing operational turnarounds, improving margins and creating
meaningful long-term shareholder value. As you know, Trian has already suggested
several well-regarded candidates for consideration whom we believe would be willing to
serve as directors. We believe Cadbury should strengthen the Board now , in advance of
separating the beverage and confectionary businesses. Depending on these new directors
areas of expertise, they should continue to serve on either the beverage or confectionary
companys board once the businesses are separated. Lastly, since the non-executive
Chairman has announced he will be retiring next spring, we believe a Chairman in-waiting
should be named now to provide visibility for the market and ensure an orderly transition.
5. Recapitalize the balance sheet and return capital to shareholders. Despite continued
investment, the confectionary business remains a strong free cash flow generator.
Likewise, the beverage business generates exceptional free cash flow and will most likely
command an attractive valuation in the market that would be enhanced by optimizing
capital efficiency. We recommend leverage multiples (net debt / EBITDA) of 4.75x for
beverage based on our 2007 forecasts and at least 2.50x for confectionary based on our
2008 forecasts. We urge Cadbury to announce plans for a recapitalization now to further
strengthen the Companys commitment to drive shareholder value by leveraging future
margin improvement. We have already discussed with you the potential to use excess
cash from the recapitalization to pay a special dividend. Another alternative would be to
hold back some cash to repurchase shares of the beverage business post-spin, taking
advantage of any short-term dislocation in its share price due to flowback. Based on these
businesses strong free cash flow profiles, we believe they can comfortably support these
proposed debt levels while also maintaining ample flexibility to fund future growth and cost
saving initiatives.
If management and the Board fail to make progress in the coming months on their initiatives
and the plans we have outlined, Trian will look to become significantly more active in
evaluating all of our alternatives as a large shareholder. If these targets are not achieved, we
also believe there is a reasonable probability that matters will be taken entirely out of the
hands of the Board and management, as the Companys underperforming standalone
beverage and confectionary companies may well become acquisition targets. As long-term
shareholders who believe in the enormous potential for value creation at both of these
businesses, we would view this last outcome as disappointing for all of Cadburys
stakeholders.
Trian has attached to this letter an overview of our investment thesis and additional detail on
the actions we believe the Company should take to enhance shareholder value (see Appendix

2007-2008 Trian Fund Management, L.P. All rights reserved.

II). We have decided to make this letter public, along with the attached appendices, in order to
set the record straight about our interests in Cadbury since we have not publicly commented
on our position.
As always, we are prepared to meet with you to further discuss the Companys plans and our
suggested initiatives to unlock Cadburys significant values.
Sincerely,

Nelson Peltz
Chief Executive Officer
Founding Partner

Peter May
President
Founding Partner

2007-2008 Trian Fund Management, L.P. All rights reserved.

Ed Garden
Portfolio Manager
Founding Partner

Appendix I
( in millions, except per share values)

Downside Valuation
Multiple Case

Trian Valuation
Multiple Case

Confectionary Valuation:
2007E EBITDA
Multiple
Enterprise Value
Net Debt Allocated to Segment (1)
Equity Value
Fully Diluted Shares
Implied Target Value Per Share

706
13.5x
9,527
(2,039)
7,489
2,136
351p

706
14.7x
10,344
(2,039)
8,305
2,136
389p

Beverage Valuation:
2007E EBITDA
Multiple
Enterprise Value
Net Debt Allocated to Segment (1)
Equity Value
Fully Diluted Shares
Implied Target Value Per Share

655
11.0x
7,200
(3,109)
4,091
2,136
192p

655
12.8x
8,401
(3,109)
5,292
2,136
248p

Cash Available to Return to Shareholders (1)

Fully Diluted Shares
Value Per Share (Dividend or Share Repurchase)

1,701
2,136
80p

1,701
2,136
80p

622p

716p

D=A+B+C

6,382
503 bps
321
13.5x
4,335
4.0
14.0%
2,553
120p

6,382
503 bps
321
14.7x
4,707
4.0
14.0%
2,772
130p

741p
22%

846p
39%

Total Implied Target Value Per Share

Management's Margin Plan: Value From Confectionary Margin Improvement:
2011E Confectionary Net Sales
Margin Improvement - bps
Improvement in EBITDA Driven by Margin Opportunity
Multiple Applied to Confectionary Business
Total Implied Value Realizable from Margin Opportunity
Discount Period (Yrs)
Discount Rate
Implied Discounted Value
Incremental Value Per Confectionary Share (Discounted to Present)
Implied Target Value Per Share Incl. Confectionary Margin Improvement
% Change From Current
Trian's Margin Plan: Value From Margin Improvement:
2011E Confectionary Net Sales
Margin Improvement - bps
Incremental Value Per Confectionary Share (Discounted to Present) (2)

Implied Target Value Per Share Incl. Confectionary Margin Improvement

Incremental Value Per Beverage Share From Margin Improvement (3)
Total Implied Target Value Per Share from Trian's Plan Incl. Beverage Margin Improvement
% Change From Current
Note:
(1)
(2)
(3)

6,382
822 bps
212p
928p
42p
970p
60%

D+E

F
D+F

Please see Appendix II for a more detailed valuation analysis.

Assumes that Cadbury initiates a recapitalization targeting leverage multiples (net debt/EBITDA) of 4.75x for beverage
based on our 2007 forecasts and 2.50x for confectionary based on our 2008 forecasts.
Based on the same methodology for valuing margin improvement as is used above for management's plan.
Based on 300 bps of margin improvement at the beverage business, realized by 2009. Incremental value from assumed
beverage margin improvement has been discounted back to the present assuming a discount rate of 14.0%.

2007-2008 Trian Fund Management, L.P. All rights reserved.

Appendix II
Investment funds and accounts managed by Trian Fund Management, L.P. (collectively, Trian) own interests in
approximately 4.5% of the outstanding shares of Cadbury Schweppes plc (Cadbury or the Company). Trian
has recently increased its position from approximately 3.5% after forming an investment group with Qatar Holding
LLC, a sovereign wealth fund, and we continue to believe that Cadbury shares are significantly undervalued.
Trian believes that committing to and executing the plan outlined below could lead to an implied target value per
Cadbury share of approximately 888p to 970p (see Table 6), representing a 46-60% increase from yesterdays
closing price.
Summary of Trians investment views:

Outstanding collection of beverage and confectionary brands.

Trades at an 18% discount to the sum-of-its parts, before considering the potential for numerous operational
improvements.

Beverage and confectionary businesses should be separated, as management has committed to do.

Opportunity to dramatically improve confectionary

margins.

Opportunity for margin improvement at the beverage business and faster growth.

Achieving managements confectionary margin improvement plan, as well as beverage margin improvement,
implies the shares are currently undervalued by approximately 46%.

Achieving best-in-class confectionary margins, which we view as readily achievable based on our operational
experience, implies the shares are currently undervalued by approximately 60%.

Should Cadbury fail to demonstrate meaningful operational progress in 2008 that translates to the bottomline, Trian will look to become significantly more active in evaluating all of our alternatives as a large
shareholder.

MAIN DRIVER OF VALUE CREATION

Our investment thesis:

Cadbury has a world-class portfolio of confectionary and beverage brands.

-

Cadbury is the number one global confectionary company in terms of market share, with exposure to
some of the fastest growing segments in the industry, including a strong presence in emerging
markets. Cadburys ability to capitalize on wellness trends by leading industry expansion into new
functional candies, gums and chocolates should further drive sales.

Cadburys beverage business is a coveted platform, with leading brands and strong carbonated and
non-carbonated offerings. This business has highly attractive margin, cash flow and return-oninvestment characteristics all characteristics that we believe will make it a must-own pure-play
beverage company once separated.

Nevertheless, despite Cadburys announced plans to separate its confectionary and beverage businesses, we
believe the market continues to value the Company as an inefficient holding company. In our view, this has
been the case for a number of years, as Cadburys corporate structure has obfuscated the intrinsic value of its
assets.
-

Based on an analysis of valuation multiples for comparable companies, we believe Cadbury is trading at
an approximate 18% discount to its implied target value relative to its publicly traded, pure-play
competitors before considering tremendous opportunities for improvements in operations and
profitability (see Table 1).

2007-2008 Trian Fund Management, L.P. All rights reserved.

By separating the beverage business, as management has announced it will do by the end of the second
quarter of 2008 through a tax-free spin-off, we believe the current holding company discount applied
by the market will begin to diminish, paving the way for the Company to begin realizing operating
improvements and growth opportunities.
Table 1: Sum-of-the-Parts Analysis and Implied Valuation Target (Assuming No Operating Improvement)
( in millions, except per share values)
Equity

Enterprise

EV / 2007E

Company

Value

Value ("EV")

EBITDA (2)

Cadbury

12,986

16,033

11.8x

4,327
3,828
673
8,286

5,490
3,734
645
8,729

9.9x
19.5
14.9
14.8

Confectionary:
Hershey Co.
Lindt & Spruengli AG
Tootsie Roll Industries Inc.
William Wrigley Jr. Co.

Average Multiple (Excluding Cadbury) (1)

Beverage:
Coca-Cola Co.

73,083

75,479

Estimates for Cadbury Segments:

Confectionary 2007E EBITDA (2)
Beverage 2007E EBITDA (2)
Total

16.0x
Valuation

706
655
1,360

Confectionary Multiple Applied (Peer Average)

Beverage Multiple Applied (Implied 25% Premium for Coca-Cola)

14.7x
12.8x

Implied Cadbury Enterprise Value

Cadbury Net Debt
Taxes / Fees from Separation and Recap
Implied Cadbury Equity Value

18,745
(3,047)
(400)
15,298

Implied Cadbury Target Value Per Share

Current Share Price

716p
608p
Implied % Discount

Source:
(1)
(2)

14.7x

18%

Bloomberg, company filings and Wall Street research. Cadbury financials are based on Company filings, management
guidance and Trian estimates. Numbers are before non-recurring expenses and restructuring charges.
Average confectionary multiple is weighted by peer equity values.
Defined as earnings before interest, taxes, depreciation and amortization.

Most importantly, eliminating the holding company structure will better focus management by shining a
spotlight on the operating performance of both the beverage and confectionary businesses (Dr. Pepper
Snapple Group, or DPSG, and Standalone Confectionery, respectively) where we believe there is
significant opportunity for improvement.
-

Confectionary business: It is well documented that confectionary operating margins are approximately
800-850 basis points (bps) lower than those of pure-play competitors and significantly below those of
non-confectionary food companies (see Table 2). Management has announced a plan to narrow the gap
with confectionary peers by approximately 500 bps, achieving mid-teen margins by 2011. Trian believes
Cadburys margin goal is insufficient the timetable is too long and Cadbury should instead target
achieving mid-teen operating margins by 2009 and best-in-class, or high-teen, operating margins by
2011.

2007-2008 Trian Fund Management, L.P. All rights reserved.

Table 2: Comparison of Operating Margins for Large-Cap Food Industry Peers (2007E)
20.3%

"Pure Play" Competitors: Wrigley 18.5%; Hershey 17.9% (1)

Peer Average / Median (Excluding Hershey and Wrigley): 15.0% / 15.4%

18.9% 18.5% 17.9%

16.9% 16.4% 15.9%
15.8% 15.0%

13.7% 13.7% 13.7% 13.4%

Source:

(1)

Cadbury
Confectionary

Conagra

Kraft

Cadbury
Consolidated

Nestle

Unilever

Danone

Kellogg

Campbell

Heinz

General Mills

Hershey (1)

Wrigley

PepsiCo

Cadbury
Beverages

10.6% 10.0%

Peer margins per Bloomberg and Wall Street research. Cadbury margins per Company filings, management guidance and Trian estimates.
Cadbury margins have been adjusted for non-recurring expenses, allocation of corporate overhead and assumed full year impact of
acquisitions and divestitures made in 2006.
Hersheys 2007 estimated margin of 17.9% is expected to be well below historical margins (Hersheys 2004 2006 average margin was
20.2%). Hershey has committed to a cost-cutting plan targeting an incremental 300 bps of margin improvement but we have used
Hersheys 2007 depressed margin for benchmarking purposes.

Beverage business: While the beverage management team has already begun the process of eliminating
unnecessary expenses in advance of the 2008 second quarter separation, including a 35 million cost
reduction program that should more than offset lost bottling revenue, we believe management can go
even further towards improving the profitability of this business. Specifically, based on a review of
DPSGs profitability by operating segment, we believe overall margins can be improved at least 300 bps,
which would translate into a significant increase to EBITDA and valuation. On the competitive front,
DPSG has been unable to capitalize on several areas of explosive industry growth in recent years,
including the emergence of bottled water and energy drinks. Moreover, we believe there are a number of
brands within the beverage portfolio with the potential for a revival or brand extensions that have been
neglected historically. Many of these brands compete in the non-carbonated arena, which has been the
sweet spot for industry growth in recent years. We believe a management team focused extensively on
DPSG will be better positioned to realize the full potential of existing brands and play a leadership role in
developing new ideas to capitalize on evolving consumer trends.

In our view, the Companys present structure has served as a poison pill, deterring potential takeover
attempts because few suitors have the appetite or resources necessary to buy the whole company and,
therefore, reducing the pressure on management to optimize performance. Once a separation has
occurred, management and the Boards of both standalone companies will have nowhere to hide and
must be prepared to maximize performance knowing that potential acquirors may seek to take matters
out of their hands.

Steps to maximize value at Cadbury:

Trian has engaged in a constructive dialogue with Cadburys management team and Board of Directors for the
past nine months and supports many of the Companys value-creation initiatives. Trian is committed to continuing
to work with the Companys leadership to help ensure the successful execution of these initiatives as well as the
elements of Trians plan outlined below in order to unlock significant shareholder value.
1. Immediately address operating margin deficiencies at Standalone Confectionary by carefully reevaluating every aspect of the business, under the supervision of a strengthened confectionary Board of
Directors. Trian believes Cadbury can achieve best-in-class margins by 2011 through:
-

A relentless focus on cost reduction (including corporate/administrative costs) and the elimination of
duplicative functions, which have not been addressed in the past.

2007-2008 Trian Fund Management, L.P. All rights reserved.

Identifying procurement, manufacturing and supply chain inefficiencies.

Rationalizing the manufacturing footprint.

Prioritizing resource allocation to the highest margin products.

Continued strong organic revenue growth from innovation, pricing power and exposure to fast-growing
geographic regions. This growth should further leverage a reduced fixed cost base.

A commitment, starting with the Companys leadership team and filtering throughout the organization, to
not only be the worlds largest and fastest growing confectionary company but to be the most profitable.
Compensation plans should be driven by profitability at the division levels. Accountability for shared or
allocated expenses must be clear to ensure that the individuals who control these expenses are
properly incentivized to minimize or eliminate them.

Based on our extensive due diligence on Cadbury, as well as Trian and its principals track-record of fixing
operations at underperforming companies, we believe there is no reason why Cadbury should not have as
high or higher confectionary margins than best-in-class peers. Unlike many in the financial community, we
emphatically oppose the notion that there are structural differences at Cadbury that stand in the way of
achieving best-in-class margins. Rather, we believe margin improvement begins with a leadership team that
sets targets, demands results, properly incentivizes employees and is fanatical about driving out unnecessary
expenses.
2. Continue cost reduction efforts and transformation of DPSG. Trians principals have extensive
experience operating beverage businesses, including the highly successful turnaround of Snapple Beverage
Corp. (sold to Cadbury in 2000). Based on this experience, we firmly believe that eliminating unnecessary
costs and bureaucracy, which Cadbury has begun to do, creates a more entrepreneurial culture that rewards
creativity and ultimately translates into better results. As previously stated, we believe DPSG can improve
margins at least 300 bps over time driven by eliminating duplicative central costs, simplifying the
organizational structure, executing on acquisition synergies and extracting manufacturing and distribution
efficiencies. We also believe that DPSG should consider divesting certain businesses, including Motts,
Clamato, ReaLemon, ReaLime and Roses. These businesses add manufacturing and operational
complexities, are distributed primarily through a different channel (grocery) than much of the remaining
portfolio but are nevertheless outstanding brands that we believe have considerable market value.
3. Add several new outside directors to help oversee execution of the plans. These new directors should
have relevant industry backgrounds and experience overseeing operational turnarounds, improving margins
and creating meaningful long-term shareholder value. Trian has already suggested several well-regarded
candidates for consideration whom we believe would be willing to serve as directors. We believe Cadbury
should strengthen the Board now, in advance of separating the beverage and confectionary businesses.
Depending on these new directors areas of expertise, they should continue to serve on either the beverage
or confectionary companys board once the businesses are separated. Lastly, since the non-executive
Chairman has announced he will be retiring next spring, we believe a Chairman in-waiting should be named
now to provide visibility for the market and ensure an orderly transition.
4. Recapitalize the confectionary and beverage businesses, return capital to shareholders and complete
the 100% spin-off of DPSG. Cadbury has committed to spinning off its beverage business by the end of the
second quarter of 2008, a strategic initiative we strongly support. We also believe the Company should
announce plans for a recapitalization and recommend leverage multiples (net debt / EBITDA) of 4.75x for
DPSG, based on our 2007 forecasts, and at least 2.50x for Standalone Confectionary, based on our 2008
forecasts. This will allow shareholders to own two pure-play securities representing distinct interests in
beverage and confectionary and permit the Company to return approximately 1.70 billion of capital through
a dividend of 80p. To mitigate any short-term dislocation in DPSGs share price following the spin-off, a
portion of the cash proceeds from the recapitalization can also be held back to repurchase DPSG shares.
Based on DPSG and Standalone Confectionarys strong free cash flow profiles, we believe they can

2007-2008 Trian Fund Management, L.P. All rights reserved.

comfortably support these proposed debt levels while also maintaining ample flexibility to fund future growth
and cost saving initiatives.
Table 3: Recapitalization Assumptions and Pro Forma Capital Structure
( in millions, except per share values)
Recapitalization & Cash Available to Return to Shareholders:
Sources:

Uses:

New Debt Proceeds

2,101

Total Sources

2,101

Taxes / Fees from Separation and Recap

Proceeds Available for Return to Shareholders (1)

400
1,701

Per Share Cash Available for Return

Pro Forma Capitalization:

Net Debt

Fully Diluted Shares (mm)

(1)
(2)
(3)

Confectionary

815

Net Debt / EBITDA

Note:

2,101
Beverage

2,039

EBITDA

Source:

80p

Total Uses

3,109
(2)

2.50x
2,136

655

(3)

4.75x
2,136

Company filings, management guidance and Trian estimates. Cadbury numbers have been adjusted for non-recurring expenses,
allocation of corporate overhead and assumed full year impact of acquisitions made in 2006.
We have not included future restructuring charges as a use of cash, as there is sufficient cushion for these costs to be funded by
free cash flow at both DPSG and Standalone Confectionary.
Cash can be used to pay a special cash dividend or to repurchase beverage shares following the spin-off.
Confectionary EBITDA represents Trian's fiscal 2008 estimate.
Beverage EBITDA represents Trian's fiscal 2007 estimate.

Arriving at an implied valuation target for Cadburys shares:

Given the announced separation of beverage and confectionary, we believe a sum-ofthe-parts approach to
valuation is appropriate and have analyzed each business by benchmarking it against pure-play competitors and
assuming that an efficient capital structure has been put in place (Table 3).
DPSG valuation:
Trian believes that a spin-off of DPSG will result in meaningful value realization and will provide an opportunity for
shareholders to capture upside in the long-term that otherwise would go to a buyer in the event of a sale. CocaCola is the only pure-play beverage competitor of consequence and trades at an enterprise value multiple of
approximately 16.0x 2007 EBITDA. In contrast to market reports to the contrary, we would note Coca-Colas
revenues are derived from a variety of business lines including bottling operations that the Company
controls/consolidates and also has equity investments in. We estimate that bottling accounted for approximately
25% of Coca-Colas trailing twelve months consolidated net revenue, 6% of its EBITDA and 15% of its net
income. At DPSG, we estimate that bottling accounts for approximately 46% of its net revenue, 12% of its
EBITDA and 10% of its net income. Thus, the common perception that Coca-Cola is a pure-play concentrate
business, as compared to DPSG which has significant bottling exposure, is significantly overstated.
Though we would not expect DPSG to achieve quite the same valuation as Coca-Cola, we nevertheless believe
Coca-Colas valuation places a high ceiling on the multiple that could be achieved by DPSG in the public markets.
While the leveraged finance market has weakened, rumored bid levels from prospective buyers for DPSG fell and
Cadbury was grouped into a category of companies that are essentially failed leveraged buyout candidates, it is
notable that Coca-Colas shares have surged and are close to a multi-year high. We believe public market
investors are attracted to pure-play beverage companies like Coca-Cola, and ultimately DPSG, due to their iconic
brands, strong, predictable cash flows and insulation from market volatility (including the credit markets). For
these investors, DPSG will provide a compelling investment opportunity, given its number one position in the
attractive flavored cola market, diverse portfolio of other leadings brands and exposure to the fast-growing noncarbonated segment.
Applying Coca-Colas 2007 EBITDA multiple to DPSG implies a target value of approximately 346p per share
(after deducting 146p per share of allocated net debt). More likely, assuming the market would conclude that

2007-2008 Trian Fund Management, L.P. All rights reserved.

10

Coca-Cola is deserving of a 25% higher multiple relative to DPSG, given Coca-Colas dominant market position
and global scale, that would imply a target value of 248p per share based on a multiple of 12.8x. Should DPSG
successfully improve operating margins by 300 bps as we have suggested, that would result in a discounted
implied target value of 290p assuming the same 12.8x multiple (see Table 4 for a summary valuation of DPSG,
including the methodology used to value future margin improvement).
Interestingly, a valuation in this range implies a multiple for DPSG that is 16.7% higher than the average of where
the U.S. packaged food universe currently trades, which we believe is warranted given DPSG has significantly
higher margins, generates better cash flow and has generated comparable or better organic growth rates than
many food companies in recent years.
Table 4: Per Share Implied Target Value of DPSG
Assuming

Assuming Coca-

Coca-Cola's

Cola Deserves a

Multiple

25% Premium Mult.

Assumed EV / 2007E EBITDA Multiple

16.0x

12.8x

Implied Enterprise Value Per Beverage Share

Less: Net Debt Per Beverage Share
Implied Target Equity Value Per Beverage Share Before Margin Improvement

492p
(146p)
346p

393p
(146p)
248p

Incremental Value from Margin Improvement:

2011E Sales
Margin Improvement - bps
Improvement in EBITDA Driven by Margin Opportunity
Multiple Applied to DPSG
Total Implied Value Realizable
Discount Period (Yrs)
Discount Rate
Implied Discounted Value
Incremental Value Per Beverage Share (Discounted to Present)
Total Implied Target Value Per Beverage Share Assuming Margin Improvement

3,048
300 bps
91
12.8x
1,174
2.0
14.0%
898
42p
290p
DPSG

Comparison to Food Company Index:

DPSG

EBITDA Margins

23.2%

EBITDA - Capex as a % of Sales

19.6%

Assumed 2007E EBITDA Multiple

12.8x

Source:

Note:

Premium multiple to the

U.S. Food Universe is
driven by superior free
cash flow

U.S. Food

vs. Food Index

Universe

Better / (Worse)

18.9%

433 bps

14.6%

499 bps

11.0x

Company filings, management guidance and Trian estimates. Cadbury numbers have been adjusted for non-recurring expenses,
allocation of corporate overhead and assumed full year impact of acquisitions made in 2006. Net debt allocation is based on incremental
leverage as highlighted in previous table.
U.S. food universe includes Campbell Soup Co., Conagra Foods Inc., General Mills Inc., HJ Heinz Co., Kellogg Co., Kraft Foods Inc.
and PepsiCo Inc.

Standalone Confectionary valuation:

With a dividend of 80p per share and DPSG valued at 290p per share, implying a substantial multiple discount to
Coca-Cola, we are left to value Standalone Confectionary including the dramatic opportunity for margin
improvement. Applying the average of the peer company multiples to Standalone Confectionarys 2007 EBITDA
forecast implies a per share value target of approximately 389p per share (after deducting 95p per share of
allocated net debt). This value does not account for any future confectionary margin expansion, which Trian
believes is the single biggest driver of shareholder value creation at Cadbury.

2007-2008 Trian Fund Management, L.P. All rights reserved.

11

Standalone Confectionary margins are barely half the level of the Companys closest peers. Margin improvement
is also something that management has significant ability to influence through a disciplined cost reduction
program. As previously stated, we believe that the current plan to increase operating margins from approximately
10% to the mid-teens by 2011 is insufficient. Once again, based on our extensive due diligence on Cadbury, as
well as Trian and its principals track-record of fixing operations at underperforming companies, we believe
Cadburys plan should be amended to target mid-teen operating margins by 2009 and best-in-class, or highteen, margins by 2011.
Should Cadbury achieve even managements current plan of mid-teen confectionary margins by 2011, we arrive
at a discounted implied target value for Standalone Confectionary of 519p per share and an implied target value
for the Company as a whole of approximately 888p per share. Should Standalone Confectionary close the
margin gap with its best-in-class confectionary peers, as we believe is possible, we arrive at an implied value for
the Company as a whole of approximately 970p per share, representing 60% upside to the current share price
(see Table 5 for a summary valuation of Standalone Confectionary, including the methodology used to value
future margin improvement, and Table 6 for a summary valuation of the Company as a whole).
Table 5: Per Share Implied Target Value of Standalone Confectionary
( in millions, except per share values)
Implied Target
Value Before
Margin Improvement

Assumed EV / 2007E EBITDA Multiple (Peer Average)

(1)

14.7x

Implied Enterprise Value Per Confectionary Share

Less: Net Debt Per Confectionary Share
Implied Target Equity Value Per Confectionary Share Before Margin Improvement
Incremental Value from Margin Improvement:

2011E Sales
Margin Improvement - bps
Improvement in EBITDA Driven by Margin Opportunity
Multiple Applied to Confectionary
Total Implied Value Realizable
Discount Period (Yrs)
Discount Rate
Implied Discounted Value
Incremental Value Per Confectionary Share (Discounted to Present)
Total Implied Target Value Per Confectionary Share
Assuming Margin Improvement
Source:

(1)
(2)
(3)

484p
(95p)
389p
Management
Plan (2)

'Best-In
Class' (3)

6,382
503 bps
321
14.7x
4,707
4.0
14.0%
2,772
130p

6,382
822 bps
525
14.7x
7,692
4.0
14.0%
4,530
212p

519p

601p

Company filings, management guidance and Trian estimates. Cadbury numbers have been adjusted for non-recurring expenses, allocation
of corporate overhead and assumed full year impact of acquisitions made in 2006. For margin improvement cases, assumes that EBIT
(earnings before interest and taxes) margins expand by the amounts indicated above, while depreciation and amortization as a percentage
of sales remains flat at 2007 levels. Net debt allocation is based on incremental leverage as highlighted in previous table.
Peer group used to arrive at EBITDA multiple consists of Hershey Co., Tootsie Roll Industries Inc., William Wrigley Jr. Co.
and Lindt & Spruengli AG.
The management plan case assumes 15% EBIT margins are achieved in 2011.
The 'Best-In-Class' case assumes 18.2% EBIT margins are achieved in 2011, equaling the 2007E average of Hershey Co.
and William Wrigley Jr. Co.

2007-2008 Trian Fund Management, L.P. All rights reserved.

12

Table 6: Summary Implied Target Value Table

Implied Target
Value Per Share

Current Share Price

608p

Implied Target Value Per Beverage Share Before Margin Improvement (Discount to Coca-Cola)
Implied Target Value Per Confectionary Share Before Margin Improvement (Peer Average)
Cash Available to Return to Shareholders:
Total Implied Target Value Per Share Before Margin Improvement
% Change from Current

248p
389p
80p
716p
18%
Confectionary Margin Improvement

Management Plan

Incremental Target Value Per Share From Confectionary Margin Improvement

Total Implied Target Value Per Confectionary Share
Assuming Margin Improvement
Total Implied Target Value Per Cadbury Share
Assuming Confectionary Margin Improvement

'Best-In-Class'

130p

212p

519p

601p

846p

928p

Beverage Margin Improvement

Incremental Target Value Per Share From Beverage Margin Improvement

Total Implied Target Value Per Cadbury Share
Assuming Confectionary And Beverage Margin Improvement
% Change from Current

42p

42p

888p
46%

970p
60%

Trian is enthusiastic about the opportunity for substantial value creation at Cadbury and is excited by the
upcoming separation of its beverage and confectionary businesses. We look forward to continuing a constructive
dialogue with Cadburys management team and Board to help ensure that the Company successfully executes on
the initiatives outlined above to unlock substantial shareholder value.
About Trian Fund Management, L.P. (Trian Partners)
Founded in 2005 by Nelson Peltz, Peter May and Ed Garden, Trian Partners seeks to work closely with the
management of those companies in which it invests to enhance shareholder value through a combination of
strategic redirection, improved operational execution, more efficient capital allocation and stronger focus.
December 18, 2007
---------------------------------------------------------------------------------THIS PRESENTATION IS FOR GENERAL INFORMATIONAL PURPOSES ONLY. IT DOES NOT HAVE
REGARD TO THE SPECIFIC INVESTMENT OBJECTIVE, FINANCIAL SITUATION, SUITABILITY, OR THE
PARTICULAR NEED OF ANY SPECIFIC PERSON WHO MAY RECEIVE THIS PRESENTATION, AND SHOULD
NOT BE TAKEN AS ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. THE VIEWS EXPRESSED
IN THIS PRESENTATION REPRESENT THE OPINIONS OF TRIAN PARTNERS AND ARE BASED ON
PUBLICLY AVAILABLE INFORMATION WITH RESPECT TO CADBURY SCHWEPPES PLC (INCLUDING ANY
ENTITY THAT MAY BE SPUN OFF THEREFROM, "CADBURY") AND THE OTHER COMPANIES REFERRED
TO HEREIN. CERTAIN FINANCIAL INFORMATION AND DATA USED HEREIN HAVE BEEN DERIVED OR
OBTAINED FROM FILINGS MADE WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ("SEC"),
THE U.K. FINANCIAL SERVICES AUTHORITY ("FSA") AND/OR OTHER REGULATORY AUTHORITIES.
TRIAN PARTNERS HAS NOT SOUGHT OR OBTAINED CONSENT FROM ANY THIRD PARTY TO USE ANY
STATEMENTS OR INFORMATION INDICATED HEREIN AS HAVING BEEN OBTAINED OR DERIVED FROM
STATEMENTS MADE OR PUBLISHED BY THIRD PARTIES. ANY SUCH STATEMENTS OR INFORMATION
SHOULD NOT BE VIEWED AS INDICATING THE SUPPORT OF SUCH THIRD PARTY FOR THE VIEWS
EXPRESSED HEREIN. NO WARRANTY IS MADE THAT DATA OR INFORMATION, WHETHER DERIVED OR
OBTAINED FROM FILINGS MADE WITH THE SEC, THE FSA OR OTHER REGULATORY AUTHORITY OR
FROM ANY THIRD PARTY, ARE ACCURATE. TRIAN PARTNERS SHALL NOT BE RESPONSIBLE OR HAVE

2007-2008 Trian Fund Management, L.P. All rights reserved.

13

ANY LIABILITY FOR ANY MISINFORMATION CONTAINED IN ANY REGULATORY FILING OR THIRD PARTY
REPORT.
THERE IS NO ASSURANCE OR GUARANTEE WITH RESPECT TO THE PRICES AT WHICH ANY
SECURITIES OF CADBURY WILL TRADE, AND SUCH SECURITIES MAY NOT TRADE AT PRICES THAT
MAY BE IMPLIED HEREIN.
THE ESTIMATES, PROJECTIONS, PRO FORMA INFORMATION AND
POTENTIAL IMPACT OF TRIAN PARTNERS PROPOSALS SET FORTH HEREIN ARE BASED ON
ASSUMPTIONS THAT TRIAN PARTNERS BELIEVES TO BE REASONABLE, BUT THERE CAN BE NO
ASSURANCE OR GUARANTEE THAT ACTUAL RESULTS OR PERFORMANCE OF CADBURY WILL NOT
DIFFER, AND SUCH DIFFERENCES MAY BE MATERIAL. TRIAN PARTNERS RESERVES THE RIGHT TO
CHANGE ANY OF ITS OPINIONS EXPRESSED HEREIN AT ANY TIME AS IT DEEMS APPROPRIATE. TRIAN
PARTNERS DISCLAIMS ANY OBLIGATION TO UPDATE THE INFORMATION CONTAINED HEREIN.
THIS PRESENTATION IS PROVIDED MERELY AS INFORMATION AND IS NOT INTENDED AS AN
INVITATION OR INDUCEMENT TO PURCHASE OR SELL ANY INVESTMENT AND IS THEREFORE NOT A
FINANCIAL PROMOTION AS CONTEMPLATED BY SECTION 21 OF THE U.K. FINANCIAL SERVICES AND
MARKETS ACT, NOR IS THIS PRESENTATION ANY FORM OF INVESTMENT ADVICE TO THE RECIPIENTS.
THIS PRESENTATION DOES NOT RECOMMEND THE PURCHASE OR SALE OF ANY SECURITY.
FUNDS AND ACCOUNTS MANAGED BY TRIAN PARTNERS CURRENTLY HAVE AN ECONOMIC INTEREST
IN APPROXIMATELY 4.5% OF CADBURYS SHARES. THESE FUNDS AND ACCOUNTS ARE IN THE
BUSINESS OF TRADING, BUYING AND SELLING SECURITIES. IT IS POSSIBLE THAT THERE WILL BE
DEVELOPMENTS IN THE FUTURE THAT CAUSE ONE OR MORE OF SUCH FUNDS OR ACCOUNTS FROM
TIME TO TIME TO SELL ALL OR A PORTION OF THEIR HOLDINGS, BUY ADDITIONAL INTERESTS OR
SHARES, OR TRADE OPTIONS, PUTS, CALLS, CONTRACTS FOR DIFFERENCES OR OTHER DERIVATIVE
INSTRUMENTS RELATING TO CADBURYS SHARES.

2007-2008 Trian Fund Management, L.P. All rights reserved.

14