The OFT raised concerns that the merged entity would stifle competition between certain brands and lead to higher prices for consumers. This is surprising as a combined Barr Britvic Soft Drinks company would represent only 12 to 14 per cent of the UK soft drinks market, compared to Coca-Cola’s hefty 28 per cent market share, and allow it to compete more aggressively against the global soft drinks giant.
Shares fell roughly 8 per cent in both Britvic and AG Barr on the back of the news, but the situation is arguably more worrying for Britvic, which was relying on the merger to give it greater scale and to cut costs. Britvic had £443m of net debt in September, which equated to 2.8 times cash profits before tax, and the company took a massive hit last year for the Fruit Shoot recall. Added to this, the soft drinks take home market is declining, its wholesale business is struggling, and while revenues might be growing, actual volumes are down.
Having said that, its latest trading update was more encouraging, with underlying growth forecast at 2 to 4 per cent. The company has appointed a new chief executive in Simon Litherland, who has been running the GB business for more than a year. Britvic has also reached an agreement with PepsiCo America Beverages to speed up the distribution of Fruit Shoot to 30 US States by the summer, and with PepsiCo South West Europe for the national distribution of Fruit Shoot in Spain in the early Spring.
As for AG Barr, which came into the deal in better shape, a recent pre-close trading update was strong with sales growth of 7 per cent and forecasts for double digit growth across most of its branded portfolio. If the merger does not go ahead, the company has a reasonable alternative, which is to focus on organic growth. A new Milton Keynes facility will be twice the size of that of Cumbernauld, and production is due to start in the summer. This will both increase capacity and make it easier to access markets in England and Wales from which 55 per cent of sales are now generated.
The Competition Commission is set to rule on the case by July or September at the latest, delaying the deal by six to 12 months.