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A strange thing happened on the way to the London Stock Exchange this morning. Beverage baron A.G. Barr (LSE:BAG) announced that the UK Competition Commission had completed its review of Barr’s proposed merger with its rival Britvic (LSE:BVIC). The commission has made a provisional decision that the merger would not have any significant effect that would “result in the substantial lessening of competition.” In fact the commission report that “In our assessment of the evidence we noted that customers were in the main not concerned by the merger and said that the two companies’ brands did not overlap very much.”
The strange thing was that the share price of both companies almost immediately began losing ground. As at 2:30 pm BAG was trading at 508.25, down 0.75p, a decline of 0.15%. Britvic took a 9.05p loss (1.81%), falling to 491.45.
The investor reaction, if the cause and effect are that closely related, seems at first glance to be the opposite of the expected response, especially when Barr CEO, Roger White, said that “The Board of A.G. BARR believes this is a significant positive step.”
The fly in the ointment – or soft drink – comes from the other side of the deal, in an announcement published this morning by Britvic. We need to remember that the merger talks lapsed at 13 February this year, but were resumed the following day when both companies agreed to cooperate with the committee’s investigation until it was completed. That should have been a portent of things to come.
Britvic Chairman, Gerald Corbett, tempered the top-popping, saying that “Our Company is in a different place to last summer when the terms of the merger were agreed.” What does he mean by that? Well, he means that “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.” (Emphasis mine). During the regulatory approval process, Britvic did not stand idly by, twiddling their collective thumbs. They brought in a new CEO (Simon Litherland) and developed and began implementing an entirely different strategic plan, one that, apparently, does not include a merger with A.G. Barr.
The proposition to merge was originally announced in September 2012. At that time the CEO of Britvic was not named as a candidate for an executive position in the newly proposed company. It’s not likely then that Mr. Litherland would be overwhelmingly excited about the proposed merger, which, although it had been touted as a cost-savings measure for both companies, Mr. Corbett clearly said today that the cost savings were not really that considerable compared to what the new Britvic strategy would generate.
That leads some to speculate that the proposed merger was not about cost savings at all, as much as it was a strategic move to ally the companies in their perpetual battle against Coca-Cola, a battle that they are never going to win, on their own or together.
If you’re looking for fizz, I submit that you will be able to find it at Britvic as their new strategy becomes reality. How do you see it?
