ATLANTA -- Coca-Cola Co. agreed yesterday to buy most of rival Cadbury Schweppes PLC's beverage brands outside the United States for $1.85 billion and warned that slumping international sales will pull fourth-quarter earnings below expectations.
The world's largest soda company will pay $1.75 billion in cash and issue $100 million in debt for Cadbury's Canada Dry, Dr Pepper and Crush brands in more than 120 countries.
"The test will be whether Coke can extract more from those brands than Cadbury was able to," said Michael Schroeder, chief investment officer of Wasmer, Schroeder & Co. in Naples, Fla., which owns Coke stock. London-based Cadbury is all but withdrawing from international beverage markets as it concentrates on its candy and U.S. soda businesses.
Coke's move is the latest by Chief Executive Officer M. Douglas Ivester to cement its position over PepsiCo Inc. as the leading beverage company in most nations. It comes as Coke warned that fourth-quarter earnings will fall as much as 20 percent below forecasts because of slowing sales in much of Asia, Latin America and Eastern Europe.
Coca-Cola's shares fell $3.1875 to $62.875 on disappointment about the earnings warning. Cadbury's American depositary receipts rose $4.75 to $66.125.
Brad Shaw, a spokesman for rival PepsiCo Inc., said the No. 2 soft-drink maker will "take a close look at every aspect of this deal." He declined to be more specific. PepsiCo owns international rights to 7UP, which is a Cadbury soft drink in the United States, and its U.S. bottlers are large distributors of Cadbury sodas.
Atlanta-based Coca-Cola's market share of the world's soft-drink industry will increase to 52 percent from 50 percent as a result of the acquisition, said Salomon Smith Barney analyst Jennifer Solomon, who upgraded Coke shares to "buy" from "neutral" yesterday.
Coke has a 43.9 percent share of the $55 billion-a-year U.S. market. Cadbury holds third place with 15 percent, behind PepsiCo's 30.9 percent.
Coca-Cola forecast fourth-quarter earnings of 24 cents to 25 cents a share, less than the average estimate of 30 cents among analysts surveyed by First Call Corp. This will be the second quarter in a row that the company has had a less-than-expected profit.
Morgan Stanley Dean Witter analyst Andrew Conway estimated that Coca-Cola sales have dropped by double-digit rates in Malaysia and Indonesia in the quarter. He also estimated that Coke's case sales are down 1 percent to 3 percent in Japan and 11 percent to 13 percent in South Korea.
Sales in Brazil, Germany, Venezuela, Colombia and Russia are also being hurt, the company said.
Pub Date: 12/12/98