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Britvic Gains as Cost Cutting Plans Reduce Merger Uncertainty

Britvic Gains as Cost Cutting Plans Reduce Merger Uncertainty
Bottles of Robinsons orange fruit and barley squash drink, produced by Britvic Plc, pass along the production line at the company's factory in Norwich. Photographer: Chris Ratcliffe/Bloomberg

Britvic Plc, the U.K. maker of Robinsons Barley Water, rose the most in more than eight months after saying it will shut factories and reduce staff after abandoning a merger with A.G. Barr Plc.

Britvic rose as much as 11 percent in London, the biggest gain since it said it received an approach from the Cumbernauld, Scotland-based soft-drink maker in September. Almost 1.2 million shares traded, more than double the three month daily average. The shares traded 9.2 percent higher at 515.5 pence by 11.02 a.m., the highest since July 2010.

Britvic will close two factories in Great Britain and a warehouse in Northern Ireland in a move to deliver annual savings of 30 million pounds ($45.3 million) a year from 2016, the company said in a statement today. It will also invest 10 million pounds a year by 2015 in its international business as it seeks to tap “increasingly attractive” growth prospects outside the more competitive U.K. market.

The announcement indicates that Britvic may have given up on a potential merger with A.G. Barr and instead opted to prune its cost base, analysts said. The company agreed to merge with the maker of Irn-Bru fizzy drinks in November before scrapping plans three months later after the U.K. Office of Fair Trading said it would refer the proposed deal to the Competition Commission. The watchdog cited a possible reduction in competition between Pepsi and Tango, which Britvic sells in the U.K., and A.G. Barr’s Irn-Bru and Orangina.

Clearly Significant

“The 30 million pounds of identified cost savings are clearly significant and essentially means that Britvic no longer needs to merge with A.G. Barr,” Jonathan Fyfe, an analyst at Mirabaud in London, wrote in a note to clients today.

Britvic and A.G. Barr may revive merger plans if the competition review reaches a favorable conclusion, they said in February, and London-based Britvic expects a decision by the end of July.

“We now see the likelihood here as small (under 10 percent) as Britvic appears to be capturing some of the perceived benefits by itself,” Ian Shackleton, an analyst at Nomura, wrote in a note to clients today.

A.G. Barr’s shares traded up 1 percent at 580 pence.

Britvic, under new Chief Executive Officer Simon Litherland, plans to close its Chelmsford and Huddersfield plants in England in the first quarter of 2014 and combine its U.K. and Ireland teams. It will also shut a Belfast, Ireland-based warehouse in the fourth quarter of 2013.

Job Cuts

The changes will cost 40 million pounds and will result in job cuts of between 10 and 15 percent of staff, Britvic said. The company reported earnings before interest and taxes of 52 million pounds in the 28 weeks to April 14, an increase of 29 percent from the first half of 2012.

Britvic also said today it expects full-year earnings before interest and taxes to be at the “upper end” of a prior forecast range of 125 million pounds to 131 million pounds.

“While the cost savings plan is a positive (and shows the new CEO has hit the ground running), it could mean that a possible merger with A.G. Barr is less likely,” Olivier Nicolai, an analyst at UBS AG in London, wrote today.

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