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UK: Britvic investors "should be relieved" over AG Barr merger talks - analyst

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A merger between Britvic and AG Barr “makes a lot of sense”, an analyst has said, with “management mishaps” such as the Fruit Shoot product recall forcing Britvic into a corner.

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The UK soft drinks firms confirmed today (5 September) that they are in talks over a possible merger, with AG Barr CEO Roger White in line to run the combined group. The “stronger management” team should help Britvic rebound from three years of decline, Canaccord Genuity's Wayne Brown said.

“Britvic shareholders should be relieved,” Brown told just-drinks.

“Operationally and financially on every metric versus the peer group, Britvic has been under-performing and was not looking a very good investment.”

He added: “Britvic's brands' performance is not akin to what the rest of the sector is seeing, which would highlight that operationally there are significant levels of improvement that can be made to that business.”

Brown said this year's product recall of Fruit Shoot in the UK, estimated to cost Britvic GBP25m (US$38.9m), while a one-off error, was symptomatic of deeper issues.

He said: “There was a fundamental flaw with the design of the cap, so these are management mishaps. And what you don't do with a GBP150m business is launch a product you know does not work and is dangerous.

“The ability to re-establish the Fruit Shoot brand will probably take some time but with the AG Barr management team at the helm we have greater confidence that this will be done successfully.”

Brown said today's announcement of talks on a merger “does put it in play”, but warned: “Who's to say a Suntory or a Japanese brewer might not come around the corner.”

In a note earlier he wrote that “it appears that discussions are actually well advanced. 

“We would also assume (not confirmed by either party) that with PepsiCo’s change of control clause within its bottling contract with Britvic, that they have agreed to the proposals laid out today. This would remove the largest risk to the merger.”

Brown said Britvic's foothold in the US, where it operates a franchise business for concentrates, has stronger appeal than AG Barr's long-term position in Eastern Europe.

“I think that, from an option value, (the US franchise concentrate model) will be quite strong in the future.”

To see just-drinks' full coverage of AG Barr and Britvic's proposed merger, click here.


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