Spotlight – Cadbury buy-back

Cadbury Schweppes, the confectionery and beverages group, should become the latest UK company to take advantage of a share buy-back at its agm next week, despite the growing interest shown by the Inland Revenue in the arrangement.

Group finance director David Kappler will be keeping his fingers crossed that shareholders vote through the buy-back, the size of which the company refuses to specify.

With pre-tax profits for 1998 up 11% and the proposed sale of its non-US soft drink brands to Coca-Cola, Cadbury Schweppes argues the buy-back will allow it to use surplus cash more efficiently, particularly on the acquisition trail.

Company share buy-backs have become a contentious tax issue after the Revenue said earlier this month it would block corporate tax relief on a similar proposal by Electra Investment Trust. The Revenue is thought to be concerned that the growing trend will reduce its corporate tax receipts.

One tax expert at a Group A firm, however, predicted the Cadbury Schweppes package was a traditional corporate move to reduce a cash mountain and it was unlikely the company was doing it to escape tax. ‘There could be a tax angle, but Cadbury Schweppes is more likely to be saying that its balance sheet is full of cash and it offers a poor return to investors,’ he said. ‘It’s a normal policy for companies.’

A bigger cause of anxiety for Kappler, who joined the company in 1989, is the hold-up to the group’s $1.85bn sale of soft drinks to Coca-Cola by the Australian Competition and Consumer Commission.

The ACCC argued that the sale of Cadbury Schweppes drink brands would ‘substantially lessen competition’ in the Australian soft drinks market, and would push up Coca-Cola’s market share from 65% to 75%. Cadbury Schweppes was forced to present a revised deal.

Kappler, however, has said that the deal with Coca-Cola remains on course to be completed by the third quarter.

Related reading