Distribution * This potential merger gives opportunity to take advantage of the high quality network of distributors which Adams possesses. “Think global, act local” has become a mantra of the distribution side of the company and with this comes a high quality and adaptable service. Adam’s big presence in markets new to Cadbury Schweppes such as South America reduces the cost of distribution in those markets for Cadbury Schweppes while also reducing the time the products spend in transit, thus increasing the quality of perishable goods such as chocolate. This experience in these countries will ultimately improve the quality of the Cadburys Schweppes products and I believe will make this acquisition a success.
Integration
* Cadbury Schweppes has 98 manufacturing and bottling facilities located mainly in the UK, America, The Pacific Rim and Europe. While Adams, has 22 production facilities located in 18 countries globally but their sales in America account for 75% of total sales. If Cadburys Schweppes acquired Adams we feel that the overlap in the production facilities could lead to major cost savings synergies for the new reformed business and for Adams products to increase their sales in new markets. 11 of Adams 22 plants are in prime position to take advantage of economies of scale. At present 49% of Adams revenue involved inter-country transfers of products, as opposed to only 7% of Cadbury Schweppes. We believe that the combination of both companies can lead to economies of scale by producing both companies’ products in the same manufacturing facilities. Cadburys has a history of creating cost synergies for their newly acquired firms as shown by the acquisition of Dr. Pepper and 7-Up in 1995, this experience will be vital in the consolidation process of the two firms. This will lead to ingredients being sourced in the country in which it is being produced, improving the freshness of the products sourced, the quality of the products and reduce the shipping costs associated with sourcing them internationally. There will also be the added advantage of economies of scale associated with bulk purchacing ingrediants, especially sugar. If the companies integrate correctly with Adams innovative products and Cadbury Schweppes international renowned brand, we expect sales to increase and new products which are in the process stage to be brought to markets effectively, having a higher quality than before at cheaper costs to the firm to produce.
Patents
* Acquisition of Adams will give Cadbury Schweppes control over several materials-based patents and trade secrets which can be incorporated into Cadbury’s production processes to improve the quality of current products. These include an improved gum base, new center-filled pellet gum and, in particular, their patented flavour encapsulation technique. This technique gives gum knockout flavour combinations which last for longer and will greatly improve the quality of Cadbury’s current gum brands of Hollywood, Dandy and Kent. Adams have proven their capabilities developing many innovative processes in the past and acquiring their expertise in this area will help to enhance the quality of Cadbury’s product range and help increase market share. These innovations are key drivers in responding to changes in consumer tastes and preferences.
Cost Benefit * The current typical Operating Profit that Gum provides is 12.1%, while the Operating Profit for Confectionary is 14.7%. Major costs associated with producing Gum and Confectionary are Distribution Costs and Factory costs. Factory costs amount to 15% of Confectionary sales and 12.6% of Gum sales, while Distribution costs amount to 13% for Confectionary and 20.8% for Gum. We believe that this proposed merger will allow us to decrease Factory costs margins. Cadbury’s factory costs were significantly higher than those of its European peers at 16% as opposed to Adams factory costs which were closer to the average at 12% of sales. Learning from Adams cost-saving measures could have a significant positive impact on the Operating Profit of Cadburys Schweppes. Because Adams is very strong in the areas where Cadburys has been weak, distribution costs will fall as it will now be easier to produce foods locally using locally sourced, quality ingredients.