City optimism punctured as hopes fade for £7bn deals
Merger of Britvic and Irn-Bru in doubt while Severn Trent suitors walk away from bid
City hopes for a rebound in lucrative takeovers were dashed last night as two major deals worth a combined £7bn hit the rocks.
A consortium of bidders walked away from a £5.3bn deal for Severn Trent Water, while Britvic's £1.8bn tie-up with the Irn-Bru drinks maker AG Barr also looked set to collapse.
Together, the deals could have triggered fees of as much as £100m for the bankers advising on them. Big takeovers are generally seen as a sign of optimism in the economy.
Investment banks had hoped for a rise in the number of big City deals this year, but Dealogic revealed that the combined value of deals by UK companies has fallen to their lowest levels since it began measuring them in 1995. While takeover activity has been relatively healthy in the US, Europe, in particular the UK, has failed to follow suit. The number of deals here this year is down by 43 per cent, according to recent Thomson Reuters data.
The approach for Severn Trent came from the LongRiver consortium, which included the Ontario-based pension fund Borealis, the Kuwaiti Investment Office and the UK Universities Superannuation Fund. Severn Trent's board deemed the bid too low and the consortium ruled out tabling a hostile or higher offer.
Meanwhile, Britvic's £1.8bn tie-up with AG Barr now looks unlikely after the company said it was "in a different place to last summer" when it first agreed the merger. Since then, the Competition Commission intervened in the deal amid concerns about the monopoly implications.
Gerald Corbett, the chairman of Robinson's and Tango maker Britvic, said: "The cost savings from merging are less, we are performing better, we have new management and we have a new strategy to deliver good growth internationally as well as in the UK."
His comments came after the watchdog gave its provisional approval to the deal, a move welcomed by Barr. But analysts said the chances of a deal going ahead had slipped to less than 25 per cent from 50 per cent.
No new talks can take place until the commission's final report next month. But with Britvic shares almost double last July's level after it was forced to recall Fruit Shoots over a bottle-cap fault, Mr Corbett is set to argue that the original terms are no longer good value to its shareholders.
Jonathan Fyfe, of the stockbroker Mirabaud, said: "When the merger was first considered Britvic was reeling from the recall, a poorly executed switch to double concentrate squash and earlier input cost shocks. Now the business is much stronger. Britvic took significant market share from Coca-Cola Enterprises in the second half of 2012, the international roll-out of Fruit Shoot is gaining momentum, and the new CEO recently unveiled a £30m cost saving programme. AG Barr is no longer a 'must-do' deal for Britvic."
Britvic shares fell 14p to 486.5p and Barr dipped 6p to 503p.
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