Hard sense behind soft drinks merger

The City is licking its lips over Irn-Bru maker AG Barr's audacious reverse takeover approach for the much bigger, but troubled, Britvic

The City trader with the medium-strength hangover admitted that he may have to cut back on the naughty fizz and switch to the soft stuff. Because when the statement hit his Reuters screen he seriously thought he was hallucinating.

Click HERE to view graphic

"The boards of Britvic and AG Barr note the recent press speculation and confirm that, following an approach by AG Barr to Britvic, they are in preliminary discussions which may or may not result …" read the usual dry legalese about moves that could shake up many thousands of lives.

Wait a minute. AG Barr is bidding for Britvic? Isn't AG Barr some tinpot Scottish outfit that's been selling 50 tins of Irn-Bru a year since 1870? And isn't Britvic a giant British success story, the provider of the juice behind Wimbledon (that would be Robinsons) and a distribution partner for the mighty Pepsi?

Our trader friend's confusion is perhaps understandable, though the fizz issue may have exacerbated it.

The respective size of the two businesses make it clear that this is a bold reverse takeover attempt, the sort of surprise tactic many thought dead.

First the numbers: under the proposed terms of an all-share deal, the much bigger Britvic would own 63 per cent of the combined company, with AG Barr shareholders getting the balance.

Those merger terms suggest a value for Britvic of 350p a share. This business is, as City jargon would have it, firmly in play.

In the market, Britvic jumped 41.3p to 369.9p while Barr closed up 34.6p better at 450.2p.

Those prices indicate the City thinks some sort of deal is now inevitable. AG Barr might get trumped, but Britvic as a standalone entity is history.

Shares in both companies, forgive us, fizzed upwards, leaving Britvic valued at about £895m and AG Barr at around £523m.

But the choice of management make it clear where the power in the new combine would lie.

Roger White of AG Barr would be the chief executive – that's the job that really matters – while the finance director would come from Britvic (John Gibney), as would the chairman (the ubiquitous Gerald Corbett).

Under this scenario, and the talks are plainly very well advanced whatever the statement claims, Britvic boss Paul Moody is out.

This deal excites the City for several reasons, not just because of the fees that the bankers at Rothschild and Citi will collect for talking up the "strategic merits" of the offer.

The companies can expect to get something like £15m – individual bankers a nice slice of that. Happy days, for some.

The wider implications of the bid is that it shows signs of confidence in the corporate world that have been lacking for some time.

Many City traders and bankers, analysts and management consultants, have been near unemployed for months. Clients are so worried about the potential fallout from the eurozone crisis that they daren't move in any direction. So no deals are being done; which means no fees are being earned.

If AG Barr feels able to launch such a strike, perhaps others will follow.

Does the deal make industrial sense? It seems to. AG Barr is strong in the North and with independent retailers. Britvic is strong in the South and with the pub trade. Britvic has stronger distribution channels than AG Barr, but the latter is credited with marketing savvy that has allowed it to punch above its weight, especially with the Rubicon range of fruit drinks, a major success story which now accounts for a fifth of its sales.

The brokers Canaccord Genuity said: "We are of the view that this is the best result for the Britvic shareholders as the senior management team as well as the board of directors would be significantly improved with the introduction of Roger White … in our view the AG Barr management team have a very strong track record and would add significant strength to Britvic from both an operational and financial performance perspective."

Another reason to assume the deal will go through is that Britvic has stumbled badly just lately. While both companies suffered from the poor weather earlier in the summer, with Barr warning at the end of July that interim profits would be below the previous year's level, Britvic had a shocker.

It revealed a £25m hit to profits when it was forced to recall its Fruit Shoots brand after discovering a design fault in the caps.

That might just be the sort of misfortune that can afflict any business, but it seems that Mr Moody is going to pay the price.

One City analyst said: "AG Barr has performed very well for the past four or five years. It has grown terrifically. But Britvic has slipped on banana skins all the way. Fruit Shoot was a disaster."

Assuming no hitches, it's a result for AG Barr, and probably for the City, too. Lips are being licked.

Fizzy mixers: Big brands in the deal

* The company behind Irn-Bru – dubbed Scotland's other national drink – has confirmed talks over a possible £1.4bn merger with Britvic, maker of Tango.

* AG Barr dates back to 1875 and also makes Tizer and Rubicon.

* The pair said a merger would create one of the leading soft drinks companies in Europe, with other brands including the Britvic products Robinsons, J2O and Fruit Shoot.

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Where the spooks get their coffee fix: The busiest Starbucks in the US is also the most secretive

The secret CIA Starbucks

The coffee shop is deep inside the agency's forested Virginia compound
Revealed: How the Establishment closed ranks over fallout from Loch Ness Monster 'sighting'

How the Establishment closed ranks over fallout from Nessie 'sighting'

The Natural History Museum's chief scientist was dismissed for declaring he had found the monster
One million Britons using food banks, according to Trussell Trust

One million Britons using food banks

Huge surge in number of families dependent on emergency food aid
Excavation at Italian cafe to fix rising damp unearths 2,500 years of history in 3,000 amazing objects

2,500 years of history in 3,000 amazing objects

Excavation at Italian cafe to fix rising damp unearths trove
The Hubble Space Telescope's amazing journey, 25 years on

The Hubble Space Telescope's amazing journey 25 years on

The space telescope was seen as a costly flop on its first release
Did Conservative peer Lord Ashcroft quit the House of Lords to become a non-dom?

Did Lord Ashcroft quit the House of Lords to become a non-dom?

A document seen by The Independent shows that a week after he resigned from the Lords he sold 350,000 shares in an American company - netting him $11.2m
Apple's ethnic emojis are being used to make racist comments on social media

Ethnic emojis used in racist comments

They were intended to promote harmony, but have achieved the opposite
Sir Kenneth Branagh interview: 'My bones are in the theatre'

Sir Kenneth Branagh: 'My bones are in the theatre'

The actor-turned-director’s new company will stage five plays from October – including works by Shakespeare and John Osborne
The sloth is now the face (and furry body) of three big advertising campaigns

The sloth is the face of three ad campaigns

Priya Elan discovers why slow and sleepy wins the race for brands in need of a new image
How to run a restaurant: As two newbies discovered, there's more to it than good food

How to run a restaurant

As two newbies discovered, there's more to it than good food
Record Store Day: Remembering an era when buying and selling discs were labours of love

Record Store Day: The vinyl countdown

For Lois Pryce, working in a record shop was a dream job - until the bean counters ruined it
Usher, Mary J Blige and Will.i.am to give free concert as part of the Global Poverty Project

Mary J Blige and Will.i.am to give free concert

The concert in Washington is part of the Global Citizen project, which aims to encourage young people to donate to charity
10 best tote bags

Accessorise with a stylish shopper this spring: 10 best tote bags

We find carriers with room for all your essentials (and a bit more)
Paul Scholes column: I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England

Paul Scholes column

I hear Manchester City are closing on Pep Guardiola for next summer – but I'd also love to see Jürgen Klopp managing in England
Jessica Ennis-Hill: 'I just want to give it my best shot'

Jessica Ennis-Hill: 'I just want to give it my best shot'

The heptathlete has gone from the toast of the nation to being a sleep-deprived mum - but she’s ready to compete again. She just doesn't know how well she'll do...