Cadbury to Spin Off Beverage Unit

Credit Crunch Dashes Hopes for a Buyout By Private Equity

Cadbury Schweppes PLC said it plans to spin off its U.S. soft-drinks business as a separately traded company in the second quarter of next year, setting the timing for a decision that had been expected since the turmoil in the credit markets this summer.

Cadbury Schweppes decided against selling its drinks operations, which include Dr Pepper and 7 UP, to private-equity groups, as it had originally hoped when it said in March that it would split the company in two. Cadbury wants to separate the soft drinks from its candy business, which includes Trident gum, Cadbury Dairy Milk chocolate and Halls lozenges.

The global candy industry is fragmented and many companies are family-owned so Cadbury, the world's largest candy maker by sales, could play a role in consolidation, as either an acquirer or a target. London-based Cadbury held talks with the trust that controls Hershey Co. last month to discuss a merger, for example. Cadbury Chief Executive Todd Stitzer declined to comment Wednesday on Hershey.

Private-equity groups didn't offer as much as Cadbury had sought for its soft-drinks division because they couldn't raise funding over the summer in tightening debt markets. Analysts estimated that private equity could have paid as much as £8 billion ($16 billion).

"The debt markets have not improved and the board doesn't believe an acceptable sale price will emerge in the foreseeable future," Mr. Stitzer said in a conference call Wednesday.

"We applaud Cadbury's decision to spin off its beverage unit -- this is an irreplaceable collection of beverage brands that should command an excellent valuation as a public company," said Nelson Peltz, a founding partner of Trian Fund Management LP, which manages investment funds and accounts that own approximately 3.5% of Cadbury shares.

The new drinks company, which has yet to be named, will trade on the New York Stock Exchange. Analyst estimates for the value of the new company is between £6 billion and £7 billion. Shareholders will receive one share in the newly independent company for each share they hold in Cadbury.

Cadbury also said that the current head of the drinks business, Gil Cassagne, will retire and be succeeded by Larry Young, the head of its bottling operations.

Cadbury's shares rose 2.6% in London trading to 616 pence ($12.55). Uncertainty around the beverage division has pulled the stock down from a 52-week high of 725 pence in June.

"This is the best update given by Cadbury to the market in some time," said Andrew Wood, an analyst with Sanford Bernstein who has an "outperform" rating on the stock.

Mr. Stitzer will lead the candy company, to be called Cadbury PLC, and will need to improve its profit margin, which has lagged behind that of rivals. Investors have been pushing Cadbury management to raise its operating-profit margin, which was 10.1% last year, compared with 18.5% for Wm. Wrigley Jr. Co., according to Sanford Bernstein.

Molson Coors, SABMiller
To Combine U.S. Operations

SABMiller PLC and Molson Coors Brewing Co. said they plan to combine their U.S. operations, creating a juggernaut that could threaten the decades-long dominance of Anheuser-Busch Cos. in the American beer industry.

The joint venture, to be called MillerCoors, would have annual revenue of about $6.6 billion and yield about $500 million in annual cost savings. The combination would bring together Miller Brewing Co., the second-largest U.S. brewer by sales with about 20% market share and Coors Brewing co., the No. 3 player with about 11% market share. Anheuser-Busch controls nearly half the U.S. beer market.

SABMILLER TOP U.S. BRANDS

• Hamm's

• Icehouse

• Leinenkugel's

• Mickey's

• Miller Genuine Draft

• Miller Genuine Draft Light

• Miller High Life

• Miller High Life Light

• Miller Lite

• Milwaukee's Best

• Red Dog

• Olde English 800

The move comes as the beer giants wrestle with slower growth amid shifting consumer tastes. The mass-market brewers have been losing market share to wine and spirits companies, as well as small-batch "craft" brewers.

Analysts have long speculated that Miller and Coors would need to combine their businesses as the U.S. beer industry matures. Their combination would put heightened pressure on Anheuser-Busch to seek a merger partner itself. Anheuser, once the world's largest brewer, has fallen to No. 3 while other companies, including SABMiller, have expanded internationally through acquisitions.

A wave of mergers among the spirits companies over the last decade has raised the pressure on the beer giants, as liquor companies began to churn out sexy new products and sweet cocktails, luring lure younger drinkers away from beer. For instance, pre-mixed bottled drinks such as Smirnoff Ice have stolen share from beer over the last decade, with sales of such products topping 300 million nine-liter cases currently, triple the level of 1997, according to Merrill Lynch.

MOLSON COORS TOP U.S. BRANDS

• Blue Moon

• Caffrey's

• Carling

• Coors

• Coors Light

• George Killian's

• Grolsch

• Keystone

• Mexicali

• Rickard's Red Ale

• Zima

The two companies will share control of the venture, but because of the economic value of their respective units SABMiller will have a 58% economic interest to Molson Coors' 42% interest. Miller's top selling U.S. beer is Miller Lite, while Coors's is Coors Light.

The deal is expected to close by the middle of 2008. Both companies' business will be conducted separately until the deal completes.

"This transaction is driven by the profound changes in the U.S. alcohol beverage industry that are confronting both of our companies with new challenges," said Pete Coors, vice chairman of Molson Coors.

"As a result of this combination, Miller and Coors will be able to provide more focused support for our flagship brands, while taking full advantage of consumers' demand for imported and craft brands and innovative products," said Molson Coors Chief Executive Leo Kiely.

Mr. Coors will serve as chairman of the venture, while Mr. Kiely will be CEO.

The deal could mean that the era of large mergers in beer are starting to draw to a close, according to analysts, with only a few big multinational targets still available. Carlsberg and Heineken have ownership structures that preclude a hostile bid. Instead, Scottish & Newcastle is vulnerable to a takeover, possibly by Carlsberg or Anheuser-Busch, whish might be interested in S&N's Russian business in particular, says Rob Mann, analyst with Collins Stewart in London.

"We are approaching the final round of consolidation," says Mr. Mann. "Most markets have been consolidated at a local level by now."

The deal could, however, push Anheuser Busch to seek more acquisitions outside the U.S. than it has been willing or able to do so far. With the exception of stakes in China, India and Mexico, Anheuser has largely stuck to its model of focusing on the U.S.

"Anheuser's strategy has been wrong in that it has done almost nothing in terms of international consolidation," says Mr. Mann. "Now Coors and SAB have the opportunity to challenge the Anheuser model at home, which hasn't been possible before. Anheuser would like to return to the halcyon days of double digit growth, but it won't do that in a market that is under pressure."

As a wild card, spirits maker Diageo could seek to snap up a beer company. It is one of the only companies to have significant shares in beer and spirits as well as wine, but its beer business largely consists of Guinness. Diageo Chief Executive Paul Walsh has said that he could be interested in a beer takeover, but has said deal prices have been too high. There has long been speculation that Diageo would like to take over Heineken, but that the family that controls the beer company has been uninterested in selling. It is unlikely other spirits companies, such as Pernod Ricard or Bacardi, would be interested in acquiring beer makers, given that they are still small enough to buy other spirits brands. Diageo, by contrast, is now too large in spirits to make any significant liquor acquisitions.

Campbell Sets New Structure

Campbell Soup Co. realigned its North American management structure in a move that sets up a horse race for an eventual successor to Chief Executive Doug Conant.

Denise Morrison, newly named president of its North America soup-and-beverages business, and Larry McWilliams, president of Campbell International, are front-runners for the CEO post, according to a person familiar with the matter.

Mr. Conant, 56 years old, has no plans to retire or leave in the coming years, a Campbell spokesman said. Ms. Morrison, Mr. McWilliams and Mr. Conant, through a spokesman, declined to comment.

Campbell yesterday announced that several businesses will be placed under the umbrella of a new organization called North America Soup, Sauces and Beverages.

Ms. Morrison, 53, will head that new division.

Campbell said Mark Sarvary, president for Campbell North America, will leave the company.

Hormel Foods announces management changes

Hormel Foods Corporation has announced the advancement of Donald Kremin to vice president of Wal-Mart sales for Hormel Foods and Brian Johnson to the position of corporate secretary, effective November 1, 2007.

Mr Kremin started with Hormel Foods in 1984 as a sales merchandiser in grocery products in Lenexa, Kansas. He held various sales positions in the Midwest and, in 1990, he was named grocery products district manager in Milwaukee, Wisconsin. In 2004, he became the director of customer development in CPS in Chicago, and in 2005, Mr Kremin was named director of the Wal-Mart business team in Bentonville, Arkansas.

James Cavanaugh, general counsel and senior vice president, Hormel Foods, said: "Brian's experience and background make him eminently qualified to assume the ever-more challenging responsibility of corporate secretary."

Larry Vorpahl, vice president of Hormel Foods and president of consumer products sales (CPS), said: "Don's promotion signifies his excellent customer service capabilities and his leadership in the CPS division." Jeffrey Ettinger, chairman of the board, president and CEO, said: "We also intend to utilize Don's new role to provide assistance at Wal-Mart to our non-CPS business units, including Hormel Foods International."

Kraft organizes Oscar Mayer as seperate unit

Madison-based Oscar Mayer will become a stand-alone business unit under a reorganization plan from parent company Kraft Foods but officials here aren't yet sure what impact it will have on local operations.

The company -- which has about 2,000 white collar and union employees at its huge plant off Packers Avenue -- recently provided employees with an update on the changes announced in February by new CEO Irene Rosenfeld.

Seeking to revive lagging profits, the world's second largest food company has already eliminated thousands of jobs worldwide. Kraft hopes to increase revenues by 3 to 4 percent and is investing up to $400 million this year in research, marketing and other efforts as part of its plan.

Oscar Mayer has been part of a sector that included pizza, convenience foods and the company's Canada operations. But in early 2008, Oscar Mayer will become one of eight stand-alone business units. Others include Beverages, Canada, Cheese, Foodservice, Grocery, Pizza, and Snacks & Cereal.

Kraft Foods spokeswoman Syd Lindner said today that the new structure would simplify operations and put the company on track for faster growth.

"This will provide greater focus on individual businesses like Oscar Mayer, simplifies our organization, helps us make faster decisions and will bring us closer to our customers," she said.

In the update from Rosenfeld, Kraft said it will eliminate at least another 600 positions worldwide out of its total employment of 90,000.

Analysts have speculated that Kraft might be looking to sell off certain brands as it seeks to become more profitable. Making Oscar Mayer a separate business unit could facilitate sale of that popular brand name.

Lindner declined to predict whether jobs would be eliminated here but noted that Oscar Mayer remains a "core brand" for Kraft Foods, providing over $1 billion in sales for the Northfield, Ill.-based company.

"We have invested $125 million in the Madison plant in the past five years as we've focused on our expanded hot dog and cold cuts operations," she said. "And, in the last 18 months, we've started up a new cold cut packaging area."

Kraft to Sell Veryfine And Fruit2O Brands
As It Focuses on Growth

Making good on a promise to sell businesses that don't fit its growth plans, Kraft Foods Inc. announced the sale of its Fruit2O water and Veryfine juice brands to Sunny Delight Beverages Co., of Cincinnati.

Kraft Chief Executive Irene Rosenfeld, who is trying to boost sales at the slow-growing food giant, prepared analysts and investors in August for parting with certain brands. She emphasized that divestitures won't be her primary goal and that she will focus on trying to improve brands.

Fruit2O and Veryfine had combined sales of about $135 million last year, according to Kraft, of Northfield, Ill. Financial terms of the deal, which is expected to be completed in the fourth quarter, weren't disclosed. When Kraft bought Veryfine Products Inc., the maker of those brands, in March 2004, it had about $150 million in annual sales.

"As we restore Kraft to reliable growth, we're focusing our investments on the brands that best fit with our long-term growth strategies," Rick Searer, president of Kraft North America, wrote in a release. "Fruit2O and Veryfine are great brands that have found a wonderful home in Sunny Delight. However, for Kraft, we believe we will create greater long-term shareholder value by selling, rather than investing in, these brands."

Ms. Rosenfeld is under pressure from activist shareholder Nelson Peltz to sell underperforming brands so Kraft can focus on its strongest brands. Mr. Peltz's hedge fund, Trian Fund Management LP, has amassed a 3% stake in Kraft, according to people familiar with the matter, and he has pointed to such brands as Maxwell House coffee and Post cereals as sale candidates.

Kraft is in the process of shopping Post cereals, according to people familiar with the process. Ms. Rosenfeld said recently that the company will try to improve the quality of Maxwell House coffee and introduce new packaging.

In addition to the juice and water brands, the sale includes a manufacturing facility. About 200 Kraft employees will join Sunny Delight.

Hershey Names Its Next Chief

Hershey, the chocolate maker, said yesterday that its chief operating officer, David J. West, would become its next chief executive, a day after it announced the surprise retirement of its chief executive, Richard H. Lenny.

Mr. West, who has been with the company since 2001, will become chief on Dec. 1, Hershey said. Mr. Lenny, who is also Hershey’s chairman, will remain in that post until the end of the year.

On Monday, a Hershey spokesman said Mr. Lenny was leaving after six and a half years because he felt it was the right time to turn the company over to new management. Mr. West, who became operations chief in January, was also named president effective immediately.

McCormick to promote COO to CEO

McCormick & Co Inc said on Monday that Alan Wilson, the spice company's chief operating officer, will take over as chief executive as of Jan. 1, replacing Robert Lawless, who plans to retire as CEO.

Lawless will continue to serve as chairman of the board. Wilson will become a member of the board on Nov. 27.

Wachovia food analyst Jonathan Feeney said Wilson's knowledge of the company and broad experience should make for a smooth transition.

"No obvious implications other than the departure of a well-liked and highly optimistic CEO," said Feeney in a research note. "We think Alan is equally competent and perhaps more conservative by nature. We would expect relations with investors could take on a more conservative tone, without much effect on stock."

McCormick shares were down 14 cents at $35.83 in midday trading on the New York Stock Exchange.

Dave Peacock, who had been vice president of business operations, is swapping roles with Mike Owens, who had been vice president of marketing, the St. Louis brewer told employees late Wednesday, a company official confirmed. Mr. Peacock is close to August Busch IV, Anheuser's chief executive, and is highly regarded by the company's beer distributors. Mr. Busch told employees that Mr. Peacock will focus on reviving the company's main brands.

Among other changes, Marlene Coulis, formerly vice president of brand management, will take on the role of vice president of consumer strategy and innovation. Keith Levy, formerly vice president of sales and retail marketing, will become vice president of brand management and geo marketing.

The moves mark the first significant management changes by Mr. Busch since he became CEO last December. The changes were reported earlier Wednesday by industry publication Beer Business Daily, which cited an internal company memorandum. A management reshuffling had been widely rumored in recent weeks, in part because of Anheuser's sluggish sales. For the second quarter, the company reported a mere 0.1% increase in sales to retailers in the U.S.

Anheuser is the largest U.S. beer maker by sales, controlling a little less than half the market. Its best-selling brands are Bud Light and Budweiser.

The management changes, announced following Anheuser's September board meeting, take effect Oct. 1.

Anheuser shares are up 3% this year. The stock rose 16 cents to $50.59 in 4 p.m. New York Stock Exchange composite trading Wednesday.