Cadbury Schweppes yesterday bowed to pressure from investors led by US corporate raider Nelson Peltz and said it planned to sell or spin off its North American beverages business that makes Dr Pepper and 7Up.
Cadbury said it would provide more details on splitting its confectionery and drinks businesses at its June 19th trading update.
But Sir John Sutherland,chairman of Cadbury, said it was now time to "separate and give both management teams the focused opportunity to extract the full potential in these excellent businesses".
Cadbury's board has come under increasing pressure since Mr Peltz and a number of affiliates bought almost 3 per cent of the company this week, making his Trian hedge fund one of the company's largest shareholders.
Last year Mr Peltz pressed for changes at HJ Heinz through a proxy fight after obtaining a stake in the US food company.
Yesterday Cadbury said its drinks business had been under review for some months.
Some investors had been disappointed after the group signalled last year that it had no immediate plans to spin off the drinks operations.
Cadbury's confectionery sales have tended to outperform its drinks sales, although sweets sales were hurt in 2006 by a slowdown in its UK chocolate business.
Investors have become increasingly concerned about the group's ability to generate sustained profits growth after Cadbury warned it would not meet its 2006 sales or profits targets, and then dispensed with setting profit targets altogether.
Analysts estimate the confectionery unit could be worth £9 billion to £10 billion (€13.2 billion to €14.6 billion), while the drinks business could be worth about £7.5 billion - compared with Cadbury's current market capitalisation of £12.6 billion.
Graham Jones, an analyst at Panmure Gordon, said the only benefit of a demerger was that both companies would became bid targets.
Kraft, the US food group, has been linked with a bid for the confectionery business, while private equity groups have been linked with an approach for the drinks business.
The shares, which have climbed nearly 10 per cent in the last week in spite of a weak stock market, rose almost 3 per cent to 620p yesterday.
