Cadbury Schweppes: Capturing Confectionary

Case Analysis

Submitted to : Submitted by :
Dr. Nidhi Kaicker Himanshu Sagar

Decision Dilemma: Should Cadbury Schweppes buy Adams at a lofty price range of $4.1 billion
- $4.3 billion. Why? Why not?

The interest of Cadbury Schweppes to buy Adams is to gain positions in chewing gum sector.
Cadbury Schweppes know that beverage sector is a concentrated market where PepsiCo and
Coca-Cola are far away, on the other hand confectionery sector is fragmented and with Adams
the company have the opportunity to be the main player .Gum sector allows big margins (20%),
has only one other big player, it growing fast (7% annum) and it looks attractive for its health
benefits. With the acquisition of Adams, Cadbury Schweppes would become the world leader in
confectionery and they would achieve the second worldwide place in gum market.

In my opinion Cadbury Schweppes have to close the deal with Pfizer to buy Adams. Adams will
allow Cadbury Schweppes to gain a strong position in the chewing gum market. If Cadbury
Schweppes wants to grow as a leading company, then the only way that they can make this
step is by buying a chewing gum company because in the beverage sector they cannot compete
with Coca-Cola and PepsiCo and in the other sides of confectionery they only have experience in
producing gum. Other confectionery like chocolate, there is Nestle as a real big dominator in the
market. The deal can be perfect for the various reasons:

Both the companies match perfectly with each other. This deal can be an important
strategic move for them to sustain and grow their market share. Also Adams return to its
home because Pfizer is a chemical company and sometimes the managing criteria differ.
With the acquisition of Adams by Cadbury, Adams will be inside a confectionery
company (the same type of business). This deal can be an important strategic move for
them to sustain and grow their market share.
 Cadbury Schweppes will gain a successful R&D department and this is the key
to develop products for the chewing gum industry. Obesity is a problem in the 21st
century society, so the company has to put efforts in making sugar free gums. Adams
sugared gums have been growing at an average of 16.5%, but the important product is the
sugar free gums that have been growing at 7% annually. So the companies should focus
on sugar free gums also.

In competitors for the bid, Nestl cannot be a real one because the company doesnt have
any experience in the gum industry.

Other thing that can help Adams acquisition by Cadbury Schweppes is the fact that Pfizer
is immersed in negotiations to buy Pharmacia. Pfizer can cover a part of this $60 billion
with the amount they earn selling Adams to Cadbury Schweppes. Pfizer could also prefer
a quick deal with Cadbury. However, Cadbury Schweppes offer is higher rather than
financing the acquisition with Adams with debt, which therefore is a risk practice.

Post merger, both the organizations will be culturally fit for operations because the geographic
and product range of both companies complement each other. Both the companies can use each
other's technical expertise to improve functionality and innovation.

Financing the acquisition with debt:

Tax Benefit
Lower floatation costs
Cadbury Schweppes is a strong cash generating business
Cadbury Schweppes is an innovative company

Therefore, it is better to go for the bid.