Cadbury faces a substantial risk that the credit crisis will stymie plans to spin off its £5.4 billion US drinks business, one of Wall Street’s biggest banks said yesterday. Bear Stearns, America’s fifth-biggest investment bank, told clients that “there is now at least a 50-50 risk that Cadbury Schweppes might postpone the separation of its US beverage business planned for the second quarter of 2008”.

In a research note, Simon Marshall-Lockyer said that after a meeting with Ken Hannah, chief financial officer, on February 20, he had become concerned that the Cadbury board would be unable to spin off the business.

“Ken Hannah indicated that credit markets had been so tough they were still unable to close the Dr Pepper Snapple US beverages business balance sheet refinancing in order to obtain an offical BBB credit rating,” Mr Marshall-Lockyer wrote.

He added that Mr Hannah had explained that should the refinancing of the balance sheet not be completed by the end of March, the company “might have to reconsider” whether it should try to spin off the drinks business until conditions in the credit markets improved.

The analyst expressed some concern that despite the fact that Cadbury recognised the impending difficulties, they “remain entirely focused on the separate listing of beverages”. He also claimed that the Cadbury board was not preparing any alternative course of action in the event that credit markets do not improve.

Cadbury decided last October to spin off its drinks business - to be called Dr Pepper Snapple – and list it in New York, after the global credit squeeze derailed a sale of the business to private equity buyers.

Cadbury needs to raise $3.4 billion for the drinks business to pay off debt owed to the parent company Cadbury Schweppes.

Yesterday, given the uncertainty in the debt and credit markets, Bear Stearns cut its valuation of the drinks business by 10 per cent, from £6 billion to £5.4 billion.

Last month, the company told shareholders that it had decided against returning capital to them from the proceeds of a float of the drinks business and would instead use the cash to preserve the credit rating for both Cadbury and the soft drinks business.

At the same time, the world’s biggest confectioner reported a 2 per cent fall in profits for 2007, missing City expectations. The group, which makes Dairy Milk chocolate, Trident gum and Halls cough drops, reported underlying pretax profits of £915 million for the year, which was below an expected range of £922 million to £936 million.

At the annual results, Cadbury admitted that margins in its North American soft drinks business fell 3.4 per cent in the period, because of acquisitions and a loss arising from the introduction of its sports drink Accelerade.

Overall, it said, underlying confectionery sales rose 7 per cent last year, the best performance in a decade and above its medium-term target of 4 per cent to 6 per cent. A recovery in its chocolate sales in the UK was aided by television advertising featuring a gorilla playing the drums.

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