Cadbury expands with gum deal

Cadbury Schweppes yesterday became the biggest confectionery business in the world with the $4.2bn (£2.6bn) acquisition of US rival Adams, which owns brands including Trident chewing gum and Clorets breath fresheners.

The deal is the largest acquisition for Cadbury. It also makes it the number two in chewing gum, a market outstripping the growth rates in the company's traditional chocolate business.

The agreement marks a major return to the US market for Cadbury where it has only a limited presence. Although the company's soft drinks business including brands Dr Pepper and 7Up is distributed widely throughout the US, it largely withdrew from the confectionery market in 1988 because of intense competition.

Since then its products, including creme eggs, have been sold under licence by Hershey. "Buying Adams transforms the scale of our confectionery business," said chief executive John Sunderland. Cadbury will have 9.7% of the worldwide confectionery market after the deal is completed, according to the independent research group Euromonitor. That puts it ahead of US-owned Mars with 9.4% and Nestlé, the Swiss food group, with 9%.

Adams had 3.3% of the global market with 75% of its sales in the Americas.

The integration of the business will be the first challenge facing Todd Stitzer, an American who has driven a number of smaller acquisitions in the past two years and will replace Mr Sunderland in May.

Four brands represent 70% of Adams sales: Halls medicated confectionery, Trident sugar-free gum, Dentyne Ice chewing gum and the Bubbas bubblegum range.

Cadbury said it was borrowing to finance the acquisition, paying $3.75bn in cash and $450m in tax benefits.

Pfizer, the pharmaceutical firm behind Viagra, invited offers for Adams in June. Pfizer ended up with Adams after buying Warner Lambert, but was barred from selling the business for two years.

In a statement yesterday, Pfizer said it also planned to sell its Schick-Wilkinson Sword shaving products division within a year to focus on drugs.

Adams, which recorded earnings of $162m last year, has been suffering falling profits, which analysts blamed on uncertainty over its future ownership.

Cadbury made its ambitions in the US market clear when it made an unsuccessful $11.2bn bid with Nestlé this year to buy Hershey Foods - the deal fell through after the charitable trust which owns Hershey abandoned the sale.

The company's acquisitions in the past few years have included the Stimorol and V6 chewing gum brands from Denmark's Dandy A/S in June, the $1.45bn acquisition of Snapple soft drinks and the $720m takeover of the non-alcoholic drinks division of Pernod Ricard.

Shares in Cadbury had a volatile day closing 5.8% lower at 385.5p.