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group) saw an opportunity to buy the business they had been
managing in an LBO. Although several other competing groups also
sought to buy the bottling business, the management group
assembled its financing sooner than the competitors and purchased
the company, Mid-Continent Bottlers, Inc. (Bottlers), a
subsidiary of Philip Morris, Inc., in 1986.
Bottlers was an independent soft drink bottling business in
the Midwest, operating primarily in Iowa, Nebraska, and portions
of Illinois, Kansas, and Missouri. Bottlers bottled mainly for
Cadbury. In fact, Cadbury was about 90 percent of Bottlers’
business. Cadbury maintained considerable control over Bottlers’
ability to transfer its franchise agreements to bottle for
Cadbury to other parties. These franchise agreements were key to
Bottlers’ business and among its most valuable assets.
Financing the Leveraged Buyout
The management group used an LBO to finance the purchase of
Bottlers from Philip Morris, Inc. Once the LBO was completed,
the management group, consisting of seven executives, owned less
than 40 percent of Bottlers.
The financing for the transaction took several forms. Not
all of the financing was on the most advantageous terms because
of certain business exigencies. For example, the management
group was anxious to acquire an ownership interest in Bottlers
rather than remain employees, and the management group was under
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Last modified: May 25, 2011