Move oven rack to lowest position (remove other racks). Heat oven to 350°F. In extra-large glass or metal bowl, beat cake mix and cold water with electric mixer on low speed 30 seconds. Beat on medium speed 1 minute.
Pour about 3 cups batter into ungreased 10-inch angel food (tube) cake pan. Into small bowl, pour about 3/4 cup batter; stir in food color and peppermint extract until blended. Carefully spoon red batter over white batter in pan. Carefully spoon remaining white batter over red batter and swirl with knife.
Bake 40 minutes or until top springs back when lightly touched. Immediately turn pan upside down onto heatproof funnel or bottle. Cool completely, about 2 hours. Loosen cake by running long metal spatula along edge of pan. Place serving plate upside down on pan. Turn plate and pan over; remove pan.
In small bowl, mix powdered sugar and 1 tablespoon milk; stir in enough remaining milk, 1 teaspoon at a time, until thin enough to drizzle. Drizzle over cake; top with crushed candies.