British Group Increases Stake in Dr Pepper, Seven-Up
LONDON (AP) _ Cadbury Schweppes PLC, the British candy and drinks conglomerate, said today it would pay $231.3 million to increase its stake in Dr Pepper/Seven-Up Cos. Inc. of the United States.
Cadbury said it was buying Dr Pepper stock from The Prudential Insurance Co. of America that will raise its holding in the drink maker to 25.9 percent from 5.7 percent and said it would seek stronger ties with Dr Pepper.
Cadbury is apparently hoping to create a soft drink partnership that would be better able to compete with industry leaders Coca-Cola Co. and Pepsi-Cola Co., which together command more than 70 percent of the U.S. market.
Dr Pepper/Seven Up is third in the U.S. market while Cadbury is fourth, and together would still be a distant third in the market at about 14 percent.
Cadbury, previously rumored as a buyer for Dr Pepper/Seven-Up, indicated it would be willing to enter into a ″standstill″ agreement that apparently would prevent an outright takeover attempt as the two sides discuss ways to ″cooperate to maximize their respective strengths.″
But Cadbury declined to elaborate while talks are contining between its chairman, Dominic Cadbury, and Dr Pepper/Seven-Up Chairman John R. Albers.
″Although no agreement has been reached, and may not be reached, it is Cadbury Schweppes’ intention to continue discussions with management of Dr Pepper/Seven-Up with respect to such matters,″ the company said in a statement.
Cadbury Schweppes spokeswoman Dora McCabe would not discuss what her company is trying to get through the standstill agreement. She also declined to discuss any potential areas of cooperation.
Cadbury Schweppes is likely seeking representation on the Dr Pepper/Seven- Up board and perhaps a cooperative bottling arrangement, said Richard Newboult, a securities analyst who follows the soft drink business for the London office of U.S. brokerage Morgan Stanley.
″Assuming they can get some sort of deal with Dr Pepper, and it does not become some sort of ulcer, they can get critical mass,″ Newboult said.
Dominic Cadbury called the deal ″an excellent opportunity to increase substantially our investment both in this company and in the U.S. soft drinks industry.″
Cadbury Schweppes first purchased stock in Dr Pepper for $21 million in 1986-87 but was forced to reduce its stake when Dr Pepper Inc. and Seven-Up Inc. merged in 1988. Cadbury was paid $90 million and got a stake in the new company. It received another $27 million in 1989 and early this year by selling notes and redeeming preferred stock.
The sale of the Prudential’s stock holding has been the first opportunity for Cadbury Schweppes to increase its stake in the company, McCabe said.
Cadbury Schweppes said it would pay $19 per share, a 9.4 percent premium over Thursday’s midday price. Dr Pepper/Seven Up stock closed unchanged at $17.12 1/2 a share on Thursday on the New York Stock Exchange.
Dr Pepper/Seven-Up is rebounding from recent losses. Dr Pepper/Seven-Up reported a 1992 loss, before extraordinary charges, of $8.4 million on revenues of $658.7 million. In the first six months of 1993, it earned $48.3 million on reveneus of $353.3 million.
In North America, Cadbury Schweppes franchises include soft drinks sold under the brand names Schweppes, Canada Dry, Crush, Hires, Sundrop and Sunkist.
According to Beverage Digest, which tracks the soft drink business, Dr Pepper/Seven Up captured 10.6 percent of the market for soft drinks in the United States last year while Cadbury had 3.4 percent.
That left them third and fourth in the U.S. soft drink market behind Coca- Cola at 41 percent and Pepsi-Cola at 32.4 percent.