Cadbury has finally splashed out and got its hands on a real prize catch, and in securing confectionery manufacturer Adams, Cadbury has won a much more balanced portfolio. Despite fears that Cadbury has overpaid for Adams, the chewing gum maker is an excellent match that brings renewed opportunities for value growth.
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Cadbury Schweppes has agreed to buy US confectionery manufacturer Adams from Pfizer for US$4.2bn. Tax benefits of $450m bring the price down to a net of $3.75bn for which Cadbury gains brands such as Halls medicated confectionery, Trident sugar free gum, Dentyne Ice chewing gum and the Bubbas bubblegum range.
Cadbury’s relentless pursuit of chewing gum suppliers has already seen it bag French gum manufacturer Hollywood in 2001 and Denmark’s Dandy earlier this year.
However, some commentators fear that Cadbury has overpaid for Adams. Certainly, Pfizer was stalling over the deal, keen to get the best possible price. Despite Cadbury’s ‘deal management’, on the whole, the move is very positive for the company.
The slow pace of growth in the food industry is driving consolidation in almost every product category as manufacturers focus on building global brands. That is in large part a response to the growth of retailers, which are increasingly achieving global reach and pulling the strings in the food industry. Manufacturers are being forced to become equally global and to become the top players in their category to redress the balance of power.
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By GlobalDataFollowing the deal, Cadbury will now rank second in the global gum stakes, behind Wrigley. Adams provides an excellent plug to the gaps in Cadbury’s international reach and will increase its leverage with distributors. Cadbury’s is already dominant in the UK, Ireland and Australia and by adding Adams the company gains important footholds in North and South America, providing a far more balanced geographical portfolio.
The real pay off in the deal, however, is that Cadbury’s will no longer have to rely as heavily on its soft drinks business for its profits. Unlike chocolate, chewing gum is driving good value growth in confectionery.
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