Both firms have welcomed the approval but City analyst Panmure Gordon predicted Britvic would press for renegotiation. Its analyst Damian McNeela said in a note: “We continue to believe that a merger of the two companies makes sense but we would expect Britvic to seek improved terms given the progress the business has made over recent months.”
The Competition Commission said the proposed merger would not represent a substantial lessening of competition. But the would-be partners are unable to begin the formal merger process until the commission publishes its final report on July 30 2013.
‘Not the wounded animal’
But how much more will AG Barr be willing to give up in order to facilitate the merger, questioned McNeela? “Arguably Britvic is not the wounded animal it was last year,” he added.
Britvic announced recently plans to cut costs by £30M a year by 2016. Panmure Gordon estimated that accounted for about £15M of the planned £40M merger synergies.
McNeela also noted Fruit Shoot’s positive return to the market, a lessening of concerns over net debt levels and the arrival of new ceo Simon Litherland who replaced Paul Moody.
The original merger terms were that AG Barr shareholders would receive 37% of the shares in the enlarged company with Britvic shareholders receiving 63%. “Based on current market capitalisations, this now looks more like 33% for AG Barr and 67% for Britvic,” said McNeela. “We believe that Britvic arguable deserves improved terms but it remains to be seen how much AG Barr are prepared to give up.”
Coca-Cola Enterprises profit warning
News that rival Coca-Cola Enterprises has issued a profit warning, blaming “unexpectedly persistent” weak macroeconomic environment, poor weather and intense competition was “not particularly encouraging” for both AG Barr and Britvic, which operate in the same market segment.
Panmure Gordon retained its ‘hold’ advice on both firms’ stock.
Investec analyst Nicola Mallard agreed that a merger was far from a foregone conclusion. “Britvic highlights it is in a “different place” to last summer, which, in our view, probably reduces the likelihood of a deal this time round,” said Mallard.
Britvic’s latest cost cutting plans could either signal management’s wish to go it alone or as an attempt to “set the debate around valuation”, said Mallard.
Investec upgraded its recommendation on Britvic stock to ‘buy’ on total forecast return of more than 10% and a merger deal being agreed.
‘Busiest time of the year’
Commenting on the provisional merger approval, Britvic’s chairman Gerald Corbett said: "We welcome the Competition Commission's provisional findings and await their final conclusions by the end of July. In the meantime, as we enter our busiest time of the year, Britvic’s management team, under our new chief executive, is focused on delivering its new strategy and continuing the trading momentum established in the first half of the year.
Meanwhile, Richard Howitt, Labour Member of the European Parliament, has pledged to help fight the 230 job cuts planned at Britvic’s Chelmsford factory.
“I am confident we can make a convincing case for keeping the plant open,” Howitt told BBC News. “Britvic needed to rethink its threat of job losses.”