Cadbury Buys Adams Chewing Gum for $4.2 Billion

LONDON - Cadbury Schweppes PLC announced Tuesday a $4.2 billion deal to buy the Adams chewing gum company of the United States from Pfizer Inc. Adams' brands include Dentyne, Clorets, Certs, Bubblicious and Halls.

The acquisition, Cadbury's largest to date, secures its position as the No.2 chewing gum manufacturer worldwide and No.1 in North America. It will help Cadbury get into several fast-growing markets such as Latin America and the Caribbean.

Cadbury said it would borrow to finance the acquisition, paying $3.75 billion in cash and $450 million in tax benefits. It said it did not expect the deal to earn a positive return on capital until 2006.

John Sunderland, Cadbury's chief executive, said Adams gave Cadbury's market leadership and a unique portfolio with an offering in every confectionery category.

Although Cadbury faced competition from Nestle and Kraft Foods, Kraft is thought to have tabled a low bid, while Nestle did not regard Adams as an essential asset, according to the Financial Times.

Analysts believe Cadbury could realize cost synergies of at least $100 million through cutting overlaps and pushing Adams products through its distribution network.

Some analysts warn that Cadbury's newly appointed American chief executive, Todd Stitzer, would face a complex task in integrating Adams, while synergies would be limited by Cadbury's small size in the U.S.

But Sunderland said the group had factored in the costs and felt there would be few organizational problems. "In terms of culture, Adams, having been an orphan between two pharmaceutical companies, is more likely to find a soul mate and welcoming home in Cadbury," he said.

Sunderland said most of the cost savings, estimated to be $185 million in 2006, would come from procurement, manufacturing and distribution.
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