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CADBURY SCHWEPPES CAPTURING CONFECTIONERY
UNG PAUL MBA INSTITUTE
OUTLINE •
Introduction
•
SWOT
•
PLC
•
Porter’s Five Forces
Analysis Ana lysis •
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BCG Matrix Ansoff’s Ansoff ’s Matrix
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Financial Ratios
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Recommendations
INTRODUCTION
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Formed by a merger in 1969
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Between a chocolate company and a beverage company.
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£4,960 billion of sales in 2001
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Now it wants is to acquire Adams which is positioned in the gum business.
ISSUES •
Should Cadbury Schweppes buy Adams for $ 4 billions?
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Is their strategy sound enough to create value?
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Do they have the necessary experienced manager to success in the integration of Adams?
SWOT (CADBURY SCHWEPPES) •
3rd largest beverage company in the world
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4th largest confectionary companies in the world
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Wide range of products sold over 200 countries
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Already own two gums brand : Hollywood & Dandy
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Strong experience in brands’ acquisitions
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Huge manufacturing and bottling plants (98 factories)
SWOT (ADAMS) •
Facilities configured to take advantage of economies of scale
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Strong mind-set: “Think global, act local”
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Pioneer in the sugar-free gums
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Present in more than 70 countries
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The leading gum brand with Trident
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116 leadership positions in 33 countries
S •
WOT (CADBURY AND ADAMS) Both Cadbury & Adams faced, since 1999, a decrease in their operating margin
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Cadbury has the lowest P/E ratio of this peer group
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Most of Cadbury production facilities are in Europe, Americas, UK.
•
•
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Adams’ sugared gums know a deterioration higher than the market's competitors ones Adams needed 24 to 36 months to bring innovations developed in R&D to the market Factory costs are 4% higher than its competitors
SW •
•
•
OT (CADBURY TO BUY ADAMS)
Take possession of the large pattern and knowledge of Adams Reach the Latin American market thanks to the well implanted Adams products there Take control of the sugar free gum market which has an important margin and market growth (7%)
•
Geographic and product range are complementary
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Strong cultural fit between the two company
SWO •
•
•
•
T (CADBURY & ADAMS)
Both face really strong competitors Inherent risk in the acquisition of a company with huge financial targets to justify the price Potential risk of failure in the bid (25% chance to win) Adams Brazil had gone from a high margin to a break-even operation
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Cadbury might not have anyone to represent Adams
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Bid is overvalued
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If they lose the bid possibility of being destroyed by the leader-to-come
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Capital cost is higher for gums (6-7% of revenue) than for chocolate (3- 4%)
VALUE CREATED (%OF PURCHASE PRICE) 45% 40% 35% 4.0 4.1 4.2 4.3 4.4 4.5
30% 25% 20% 15% 10% 5% 0%
39%
36%
33%
29%
27%
24%
4.0
4.1
4.2
4.3
4.4
4.5
THE BID •
•
• • •
Pro Will catch Wrigley in the gum segment Distribution channel opportunities Cultural Fit Good relationship with Pfizer Adams has the same cost structure than the typical confectionery company
•
•
•
•
Con Lack of experience in C-S management team Do not succeed with their existing brands Adams products have no margin improvement U.S market is declining
RECOMMENDATIONS •
•
Buy Adams for $4 billion The strategy is sound but the team leadership may not be enough experienced to succeed in this acquisition.
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Unique opportunity to be a market leader
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Finance the acquisition with debt: Tax benefit Lower floatation costs Gives a posit signal to the market CS is a strong cash generating business CS is a healthy company
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Keep innovating
CADBURY SCHWEPPES SINCE 2002 •
•
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17 December 2002 : Cadbury Schweppes became the biggest confectionery business in the world.
March 2008: Demerger between Schweppes and Cadbury Cost £1,2 billion February 2010 : Kraft acquired Cadbury
