Fitch, the ratings agency, yesterday gave warning that it is considering a downgrade of Cadbury Schweppes’s credit after the group was forced to confirm plans, revealed in The Times, to hive off its £6.5 billion drinks business from its core confectionery arm.

Todd Stitzer, Cadbury’s chief executive, said: “Frankly, the level of speculation in the market in recent days made it appropriate to accelerate our announcement . . . the company should in future concentrate on its confectionery business while separating its Americas beverages business.”

Mr Stitzer said that Cadbury had been working on the plans, which it claims will help to unlock value in the group, for up to three years and played down claims that his hand had been forced by the acquisition of 3 per cent of the company's shares by Nelson Peltz.

The billionaire US activist investor, who has since met the group’s management, yesterday issued a statement welcoming the decision to break off the group’s drinks business, which includes brands such as Dr Pepper and 7-Up.

However, Fitch said: “The separation of the two businesses is likely to diminish the power that the combined group has achieved.”

The agency added that once split in two, both the confectionery and the beverages businesses would be more likely to fall victim to a takeover.

Fitch added that it was considering cutting Cadbury’s issuer default and senior unsecured ratings, which are BBB – the second-lowest investment grade.

Mr Stitzer refused to provide further details about the break-up but it is understood that Cadbury intends to proceed with a twin-track approach, pursuing either a demerger or an outright sale of the drinks arm to a private equity or trade bidder – whichever represents the best value for shareholders.

The private equity groups Lion Capital and Blackstone, which in 2005 joined forces to buy Cadbury’s European beverages business, are understood to have voiced their interest about possible bids.

Ken Hanna, Cadbury’s chief financial officer, said that the proceeds of any sale could be used to pay off some of the group’s debts, which stood at £2.9 billion at the end of 2006.

Mr Peltz’s holding company, Trian Fund Management, issued a statement in support of Cadbury’s board: “Under Todd Stitzer’s leadership, the company has successfully built two strong businesses with the size and scale to thrive independently.

“Upon completion of a separation, we believe that both businesses will be better positioned to take full advantage of their world-class brands for the benefit of shareholders.”

The decision to split the company up will make the confectionery business highly attractive as a takeover target, possibly for trade buyers such as Kraft or Hershey.

The chewing gum giant Wrigley might also be interested in the chocolate business, although it would be precluded from bidding for the gum unit on competition grounds.

The move places Gil Cassagne, the president and chief executive of the Cadbury Schweppes Americas Beverages division, in a powerful position as nominal head of what will be a £6.5 billion company third only to Coca-Cola and PepsiCo in the American soft drinks market.

Chunks of history

1969 Cadbury and Schweppes agree merger
1986 Exits general foods with sale of Typhoo and Kenco
1987 Links with Coca-Cola for joint venture drinks business
1989 Buys Bassett and Trebor
1990 Acquires Oasis soft drinks brand in France
1994 Expands on Continent
1995 Buys Dr Pepper Seven-Up in US
1997 Sells 51% stake in Coca-Cola & Schweppes Beverages drinks venture
1999 Sells drinks brands in 160 countries to focus on America, Europe and Australia
2000 Buys Snapple and Kraft Foods chewing gum and confectionery business in France
2001 Agrees to buy maker of Orangina, and Slush Puppie
2003 Agrees $4.2 billion deal to buy Adams Confectionary
2006 Sells European drinks business

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