IRN-BRU maker AG Barr’s £1.4 billion merger with rival Britvic looked “dead in the water” last night after the soft drinks deal was referred to the Competition Commission.
One source close to the merger talks said it was too early to say the merger plan was dead, but the two companies confirmed that the deal in its present form had now lapsed following the Office of Fair Trading’s (OFT) decision.
The OFT said it had referred the merger to the higher authority “due to concerns that it could reduce competition between certain brands of these two soft drinks suppliers”.
Cumbernauld-based AG Barr approached Britvic last summer over a possible merger that would have created one of the biggest soft drinks businesses in Europe.
But the OFT said in its initial findings that currently Britvic’s Tango and Pepsi brands provided “competitive constraint” on Barr’s flagship Irn-Bru and its Orangina product.
The regulator said that, if all those brands were put under one roof, then it “could not rule out the possibility of higher prices post-merger”.
Amelia Fletcher, the OFT’s chief economist and “decision maker” in this case, said: “The soft drinks industry is an important one for many consumers in Great Britain. People spend over £9 billion each year on these drinks.
“Our investigation has identified competition concerns relating to this deal with respect to Barr’s Irn-Bru and Orangina brands which could lead to higher prices for consumers.”
Fletcher added that the OFT also “could not rule out the possibility of further competition concerns arising from combining the overall Britvic portfolio of soft drinks with the entire Barr portfolio”.
She said: “We are therefore referring the merger to the Competition Commission for an in-depth investigation.”
Analysts had speculated before the announcement that competition concerns in Scotland could be at the forefront of the regulators’ minds.
The OFT’s move jolted the City, which had expected no complications. Barr’s shares dropped 7 per cent, or 39.5p, to close at 515.5p. Britvic’s shares ended the day down nearly 9 per cent, or 40p, at 420p.
In a joint statement, the two companies said they awaited the publication of the full text of the OFT’s decision and would make a further announcement once they had studied it. However, the statement confirmed the merger plan on the table had lapsed.
They said: “Both Barr and Britvic still believe that a merger would not result in competition problems. There have also been occasions when the Competition Commission has not shared the concerns of the OFT.”
But one fund manager told The Scotsman: “At best, the deal hangs very much in the balance. My understanding is that it has come as a bit of a shock to advisers on both sides as they did not think they had a regulatory problem.”
Under the terms of the proposed merger, essentially a reverse takeover by the smaller Scottish group, Britvic shareholders were to get 63 per cent of the new entity, with Barr’s shareholders holding the remaining 37 per cent.
AG Barr chief executive Roger White was to have taken up the same role at the new group, while Britvic chairman Gerald Corbett would chair the board.