divestiture business definition

Case Study British confectionary and beverage company Cadbury Schweppes announced in March 2007 that it planned the divestiture of its American beverage unit from its candy business. The announcement followed pressure from shareholders, including one investor who had acquired nearly 3% of the firm's outstanding shares, for the company to concentrate on its core confectionary business. The U.S. beverage business included 7 Up, Dr. Pepper, Sunkist, Schweppes, Hawaiian Punch, Canada Dry, and Snapple. At the time of the announcement, financial analysts estimated the beverage unit value at between $13 billion and $15 billion, somewhat less than the likely value of the firm's better-known confectionary business. If the divestiture took place by means of a spinoff, it was anticipated investors owning one share of Cadbury Schweppes prior to the split would own one share in each of the two companies following the split. Analysts also thought it possible that one or more private equity firms would offer to purchase the beverage unit. In either case, it was anticipated the divestiture would result in a gain for shareholders. The announcement was accompanied by a 2% increase in the price of the firm's shares that were traded as American Depositary Receipts on the New York Stock Exchange.