Cadbury defends its US interests

CADBURY Schweppes has launched urgent legal moves to protect its brands in America after arch-rival PepsiCo emerged as a serious bidder in the battle for chocolate-maker Hershey.

The possibility that Cadbury brands made under licence by Hershey in the US could fall into unfriendly hands grew after union officials revealed that PepsiCo executives had toured Hershey's Pennsylvania plant five times in two weeks. PepsiCo-owners of Walkers Crisps, declined to comment.

Hershey draws about 15% or $450m (£287m) of its annual revenues from the sale of Cadbury brands such as Creme Eggs made under a 1988 licence deal. Unlike a licensing agreement covering Hershey's production of Nestle's KitKat and Rolo brands, Cadbury's deal with Hershey does not include a change of ownership clause that would automatically return American rights to Cadbury.

But the British company, headed by chief executive John Sunderland, would have a veto if a new owner wanted to sell the Cadbury brands on to a third party. Now Cadbury has asked US law firm Morgan Lewis to advise it on how to regain control of brands that would pass to the winner in a sale likely to be worth as much as $12bn.

As we reported last week, Cadbury has talked to Nestle about a joint bid or carving up Hershey's brands between them. Indications are that the Swiss firm was receptive.

However, new light has been thrown on the fight for Hershey by the emergence of PepsiCo, which in the soft drinks market has given no quarter to Cadbury, owner of 7-Up and Dr Pepper.

For example, Cadbury would be concerned about PepsiCo's commitment to adequately promote products bearing a rival's name. The brands also produce annual royalty fees of $9m, income that Cadbury would be keen to keep.

From PepsiCo's point of view, the acquisition of Hershey would further diversify its stable of brands, which include the world's second-best selling cola, snacks such as Doritos, Fritos and Ruffles and restaurants Pizza Hut and Kentucky Fried Chicken.

The proposed sale has drawn heated opposition from union and local officialsworried about job losses and the effect on the local community.

The sale process was delayed last week when a judge ruled that any deal could not go ahead while he was considering if the Milton Hershey School Trust should be barred from selling its controlling interest in the chocolate-maker.