Britvic prepares to go it alone
The announcement that hotels group, IHG, plans to float off its soft drinks subsidiary, Britvic, some time in the next few years could work out well for the soft drinks firm which has lived somewhat under the shadow of large parent companies for many years. Ben Cooper reports.
It is interesting that a company synonymous with "mixers" has itself for many years been part of other larger companies which have tended to obscure its own identity. However, it seems that before long the fruit juice and soft drinks firm, Britvic, will become a stand-alone entity with the recent announcement by its largest shareholder that it is to be floated off.
Last month, Intercontinental Hotels Group (IHG) announced that it was planning to divest itself of Britvic through an IPO. The announcement came as IHG agreed a new 15-year bottling deal between Britvic and PepsiCo which also has a minority shareholding in the soft drinks company, as do Whitbread and Allied Domecq. PepsiCo also gave its consent to an IPO, to take place some time between 2005 and 2008. It had previously blocked an attempt by IHG to sell off Britvic as it feared the company could fall into the hands of a competitor.
The consensus view among analysts appears to be positive regarding the proposed IPO, particularly in combination with the agreement of the new deal with PepsiCo. "That relationship is set fair for the long term and the flotation will give them command of their own destiny," one analyst told Just-drinks.com. "They have had advantages from their relationship (with previous owners) but they have had the disadvantages of some years of uncertainty which is always disruptive."
Britvic is considered a non-core activity by IHG, which owns the Holiday Inn and Crowne Plaza chains, and represents a relatively small part of its business. However, the soft drinks company is a significant operation and the flotation could value the company at almost £1 billion. In anticipation of the sell-off, the structure of Britvic has been simplified.
Until now, IHG owned a 50% stake in Britannia Soft Drinks, whose primary activity was Britvic, with Whitbread and Allied Domecq holding 25% each. Britannia owned 90% of Britvic, with PepsiCo controlling the remaining 10%. Under the new structure, IHG owns 47.5% of a new consolidated entity, with Whitbread and Allied holding 23.75% each, and PepsiCo the remaining 5%. The new entity is expected to be floated under the name of Britvic.
Even though IHG, in the midst of disposing of non-core assets, considers Britvic to be surplus to requirements, its decision to exit the investment certainly has nothing to do with the soft drinks producer's trading performance. In fact, Britvic was among IHG's best performing operations in 2003, increasing operating profits by 22.1% to £83m on sales up 10.3% at £674m.
But IHG, which inherited Britvic when it demerged from Six Continents last year, has made up its mind that as solid a performer as Britvic is, it does not fit with its business. "There is no strategic rationale in a hotel company owning a soft drinks business," said IHG's chief executive, Richard North.
Julian Easthope, analyst at UBS, said that he expected Whitbread would also be interested in divesting from Britvic when the final details of the IPO are formalised, as it too viewed Britvic as a non-core activitiy. He also considers that IHG's announcement of an IPO meant there was no chance of a trade sale. An IHG spokesperson was quoted as saying that it was too early to say whether it would retain some sort of stake in Britvic following the IPO.
Analysts believe there will be plenty of interest in Britvic, which produces among others the Tango and Robinsons brands as well as the eponymous fruit juices and mixers and the PepsiCo licensed products, when it does come to market. IHG's attempt to sell off the company in 2001, though eventually blocked by PepsiCo, apparently produced no shortage of interested buyers.
As to when the IPO might be launched, IHG has given no firm date as yet. While the broad timeframe is between 2005 and 2008, the sell-off is thought likely to take place some time in 2005 or 2006.
"They are looking to realise their investment at the best possible price," says Simon Larkin, analyst at ABN-Amro. "I think it is fair to say that the people who own it would like it to happen now. It (the timescale) is fairly fluid. All we know is 2005 or 2006 is the sort of timeframe they are looking at to have exited by."
Britvic is the second largest largest soft drinks group in the UK after Coca-Cola. Brands such as Robinsons, Tango, Britvic and R Whites are category leaders. Under the agreement with PepsiCo, the company has the exclusive rights to Pepsi and 7-Up brands in the UK. Selling in excess of 1.1 billion litres of ready-to-drink soft drinks annually to over 250,000 retailers, Britvic holds around 24% of the UK ready-to-drink soft drinks market.
Its name derives from the British Vitamin Products Company which sold flavoured mineral waters from the middle of the 19th century. The Britvic brand itself was launched in 1949, and the company merged with Canada Dry Rawlings, then the soft drinks arm of Bass and Whitbread, in 1986.
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