The acquisiton of Dr Pepper/Seven-Up company inc
A Cadbury Schweppes case study

Page 6: Financing the acquisition

With the take-over helping the company achieve its goal, the next step was to organise it. This was a major project, and as with many projects it was given a code name - 'Potato'. This was devised from Dr Pepper/Seven-Up in the form of an anagram - DPSU = SPUD= POTATO!

On a more serious note there are many groups to take into account before the successful completion of the acquisition. There were the shareholders of both companies, managers and other employees of both companies, and particularly of Dr Pepper, suppliers and distributors of Dr Pepper/Seven-Up products, and financial institutions who would help to organise and fund the take-over. These, and others, would need to be persuaded of the merits of such an approach, and ultimately consumers of the product would need to feel that this would improve rather than harm the product and service.

The offer for Dr Pepper/Seven-Up by Cadbury Schweppes was at $33 per share. The total cost of purchasing these shares would be $1.711 million (£1.076 million). This valued the company at $3 billion and allowing for the shares already held, meant an overall cost to Cadbury Schweppes, including debt, of $2.8 billion.

This offer was recommended by John Albers, Chairman, President and Chief Executive Officer of Dr Pepper/Seven-Up, as it offered outstanding returns for shareholders and recognised that this had only come about due to the contribution of the employees, bottlers, and retailers.

With this support the American end of the deal had been largely guaranteed whilst, at the UK end, the shareholders would have to be convinced that the cost to them would be worthwhile. The total cost of purchasing the outstanding shares and assumed debt was £1.597 million, funded by debt, i.e. bank borrowing of £1.1 billion and equity, i.e. shares of £0.5 billion.

With the acceptance of the US shareholders and the raising of the required capital from the UK shareholders and the banks, the deal was finally completed on 2 March 1995.

Cadbury Schweppes | The acquisiton of Dr Pepper/Seven-Up company inc

Downloads

You can download resources for this case study below

This page and contents, ©2017 Business Case Studies, is intended to be viewed online and may not be printed. Please view this page at http://bizcas.es/vbPg6u.