Britvic, AG Barr Agree on Key Items in Merger Talks

-- Companies in preliminary discussions, but key agreements made

-- Both companies recently issued profit warnings

-- Britvic shares up 11%

LONDON--Britvic PLC (BVIC.LN) and A.G. Barr PLC (BAG.LN) on Wednesday said they have hammered out key agreements during early talks over a possible merger to create one of the biggest soft drinks companies in Europe.

In a statement, the companies said the discussions are preliminary, which may or may not result in an all-share combination, but noted that agreement has been reached with respect to certain key aspects of the merger. Britvic shareholders would own 63% and A.G. Barr shareholders 37% of the enlarged group's share capital.

No financial details were disclosed.

A.G. Barr Chief Executive Roger White would become CEO of the combined group, and Britvic Chief Financial Officer John Gibney would become CFO. Britvic Chairman Gerald Corbett would become chairman.

The companies said they have until 1600 GMT on Oct. 3 to announce a firm intention to make an offer or withdraw.

At 0850 GMT, Britvic shares were up 11%, while A.G. Barr shares were 2.5% higher, in a lower London market.

Shore Capital analyst Phil Carroll said Britvic shareholders would be happier than A.G. Barr investors, which is reflected in the stocks' performances. "I was expecting consolidation in the industry, so putting the two together doesn't massively surprise me. But I would have thought one of the bigger players would come in for Britvic."

In July, Britvic announced plans to cut costs and free up cash after posting a fall in quarterly revenue, as the U.K. soft drinks maker grapples with consumer spending levels that have been sapped by the recession.

The manufacturer of drink brands Tango and Robinsons attributed the 7.6% drop in revenue to tough trading conditions, wet weather during the key spring and summer months and the impact of a recent product recall related to its popular Robinsons Fruit Shoot brand.

The No. 2 supplier of carbonated drinks by sales in the U.K., behind Coca-Cola Co. (KO), cut its full-year capital expenditure guidance to 50 million pounds ($79 million) from GBP70 million, and said it expected to lower its target for fiscal 2013.

The news came after the company issued a profit warning and said the recall would hit its profit by up to GBP25 million this year and next.

In July, Irn-Bru maker A.G. Barr also issued a profit warning as higher costs and increased advertising spending took their toll.

Write to Simon Zekaria at [e-mail]

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