British confectionery and soft drinks group Cadbury Schweppes is planning a $4 billion-plus bid later this year for US gum and sweets company Adams, but fears losing out to arch-rivals, sources said on Wednesday.
They added that Cadbury is determined to bid for the business, with brands Dentyne and Trident chewing gum and Halls cough drops, to boost its confectionery business, but worries it may be out-bid by Swiss-based giant Nestle or top US chocolate group Hershey Foods.
Cadbury is getting a taste for chewing gum, believing it is an easier way to become a global confectionery powerhouse than slugging away trying to increase chocolate sales, when its Cadbury's brands only really sell in the British Commonwealth.
"Cadbury is determined to bid for Adams. It sees the business as key to expanding as a global confectionery group," said one industry source close to the London-based company.
Adams, whose brands also include Clorets mints and Bubbaloo and Bubblicious gum, is set to be auctioned off by its owner the world's biggest drug group Pfizer following its takeover of Warner-Lambert. Under US takeover rules, a sell-off cannot take place until two years after the deal was finalised on 19 June 2000, but investment banks are already sniffing out lucrative business, especially if Pfizer sells other Warner businesses such as Schick razors and Listerine mouthwash.
"Adams is going to be worth north of $4 billion. It is a deal Cadbury has to do to be a world force in confectionery. But I think Nestle and Hershey are bigger favourites than Cadbury," said one investment banker in London.
Nestle, the world's top food group, has deeper pockets, and Hershey would be able to gain bigger cost savings than Cadbury because of its big US presence, the banker said.
Industry sources say Cadbury and Hershey have privately expressed their interest in Adams, which would expand their existing chewing gum business, while Nestle and another possible bidder, US. Kraft Foods are watching developments.
Cadbury declined to comment on its interest in Adams.
"It is a deal Cadbury would like to do, as it is strategically attractive and would be a defining deal for them, but the question for them is how to pitch an approach and not be outbid," said one leading food industry analyst.
Cadbury chomped down French chewing gum business Hollywood for £170 million from Kraft in 2000 and is looking to swallow Denmark's Dandy for £350 million, but it would really like Adams to finish off its meal.
But Adams, number two in world chewing gum behind Wrigley, is an attractive geographic business as it only has one third of sales in the US and two-thirds internationally, which would be a powerful boost to Cadbury's global confectionery plans.
Nestle and Kraft, the world's two biggest food groups, have no chewing gum businesses, but have bigger balance sheets than Cadbury and may see gum as an attractive growth market due to its potential health benefits and tooth-whitening properties.
Cadbury has needed a confectionery deal since it sold most of its non-North American soft drinks business in 1999, but its track record on acquisitions is not good and it has often been beaten to its prizes by arch-rivals.
Over the last ten years, it has lost out on three acquisitions to Kraft - Suchard in Europe, Freia Marabou in Scandinavia and Terry's in Britain.
As the world's number four confectionery group, it has a strong position in Britain, which accounts for 20 per cent of group profits, but it doesn't have the global scale of its bigger rivals Nestle, privately owned Mars and Kraft.
The starting gun is set to go off on 19 June, and Pfizer is likely to want a quick sale as Adams's performance is slipping.
Adams's 2001 sales declined three per cent to $1.96 billion, and its first-quarter 2002 sales were down again three per cent at $440 million, mostly because of weak foreign currencies versus the dollar.