Britvic in Discussions to Merge With Irn-Bru Maker A.G. Barr

Britvic in Discussions to Merge With Irn-Bru Maker A.G. Barr
Bottles of Robinsons squash drink, manufactured by Britvic Plc, sit displayed for sale on a shelf inside a William Morrison Supermarkets Plc grocery store in Erith. Photographer: Chris Ratcliffe/Bloomberg

Britvic Plc, the U.K. maker of Robinsons Barley Water, said it’s been approached by A.G. Barr Plc about an all-share merger and has started talks to create one of Europe’s biggest soft-drink businesses.

Agreement has been reached “with respect to certain key aspects of the merger,” though there is no certainty of a transaction being concluded, the companies said today in a joint statement. The combined business would be led by A.G. Barr’s Chief Executive Officer Roger White, they said.

Shares of both companies rose in London, with Britvic gaining the most since its 2005 initial public offering as some analysts speculated that the company may receive more approaches. Britvic, which has an agreement to sell PepsiCo Inc. products in the U.K. and Ireland until 2023, and A.G. Barr, the maker of Irn-Bru and Orangina, are seeking to combat slower consumer spending in the U.K., their largest market.

“The A.G. Barr management team have a very strong track record and would add significant strength to Britvic from both an operational and financial performance perspective,” Wayne Brown, an analyst at Canaccord Genuity in London, wrote today. He raised his rating on Britvic to hold from sell and increased his price estimate to 350 pence per share from 200 pence.

All-Share Merger

Shares of London-based Britvic rose 13 percent to 370 pence at the close, the highest price since May 3. A.G. Barr, based in Cumbernauld, Scotland, advanced as much as 8.3 percent to 450 pence. The companies have a combined market value of about 1.4 billion pounds ($2.2 billion).

“Britvic is now in play and could attract interest from other concerns or private equity,” analysts at Numis Securities said in a note, naming PepsiCo as a possible suitor.

Britvic is the second-largest supplier of soft drinks to the 7 billion-pound U.K. take-home market and is the biggest supplier to the pubs and restaurant industry, worth about 2.7 billion pounds, according to data from Nielsen Scantrack.

A.G. Barr ranks fifth by volume in the take-home market, which is dominated by Coca-Cola Enterprises Inc. The proposed merger would create a business with take-home drinks volume of

1.04 billion liters in 2011, compared with CCE’s 1.77 billion liters. Big competitors include Danone and GlaxoSmithKline Plc.

The proposed merger may have implications for Britvic’s distribution agreements with PepsiCo, which the Purchase, New York-based company has the right to terminate under any change of control, according to company filings.

“We are aware of the announcement made today by Britvic and AG Barr,” Jeff Dahncke, a spokesman for PepsiCo, said today in an e-mail. “As a matter of policy, we do not comment on M&A activity.”

Wet Summer

Canaccord’s Brown said he would assume that Britvic has the agreement of PepsiCo for the transaction, which would remove “the largest risk to the merger.”

A merger with A.G. Barr would have “compelling industrial logic” and provide opportunities for “significant” cost and revenue benefits, the companies said today.

The potential transaction would take the form of an all-share deal, with Britvic shareholders owning 63 percent and A.G. Barr investors having 37 percent, the companies said.

John Gibney, Britvic’s chief financial officer, would hold the same role at the merged group, the companies said, adding that discussions between them are at an early stage.

Britvic, the larger company of the two, said in July that its full-year results would be at the bottom end of estimates, and it will suffer further losses this year after having to recall Fruit Shoot drinks in the U.K. because of damaged caps. The recall will reduce pretax profit this year and next by 15 million pounds to 25 million pounds, it said at the time.

Soft-drink sales in the U.K. this year have been hurt by an unseasonably wet summer, according to Britvic.

Both companies are required to announce their intention to bid for the other by no later than 5 p.m. on Oct. 3, according to the statement, or to declare that they won’t make an offer.

Rothschild is acting as financial adviser for A.G. Barr, and Citigroup Inc. for Britvic.

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