Staff face axe in Irn-Bru’s £1.4bn merger

The link-up of AG Barr and Britvic will see staff face the axe
The link-up of AG Barr and Britvic will see staff face the axe
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SCOTTISH drinks group AG Barr and Britvic are poised to cut £20 million out of costs under “very conservative estimates” from their proposed £1.4 billion merger, industry experts forecast.

Progress on the proposed all-share merger talks are set to overshadow interim trading results from Irn-Bru maker AG Barr tomorrow, when chief ­executive Roger White is ­expected to remain tight-lipped on the scale of any ­resulting job losses.

As part of likely efficiency savings, City analysts say cuts will fall on either Barr’s Cumbernauld HQ, or Britvic’s HQ at Hemel Hempstead. But neither is likely to close.

“There must be significant scope for administrative de-duplication, if nothing else” one source said.

Meanwhile, it is understood a key area of cost and revenue synergies from a combined business would be in economies of scale. White, who would probably assume the same role in any new entity, which would be one of the biggest soft drinks companies in Europe, is believed to have already targeted savings from suppliers of crucial raw materials. These include aluminium, steel, plastic and sugar.

Phil Carroll, drinks analyst at Shore Capital, said: “It is difficult to put an absolute figure on potential synergies. But other deals in the sector give you an idea of what the Barr/Britvic combination could achieve. It is normally assumed you could get a mixture of cost-­cutting and revenue-raising synergies of 5 to 10 per cent of the smaller company’s revenues.

“On Barr’s revenues [£222.4m last year], that would give you a figure of about £13m or so at least. They could also probably take another £5m or so off Britvic’s cost base, which gets you up to a figure of between £18m and £20m.”

The Scottish group spent an estimated £85m on raw materials last year, compared with Britvic spending £450m.

“It gives you a commodities budget for the combined business of well over £530m. It would make it a lot easier for the new group to put the screw on suppliers,” one industry ­executive said.

“A merged company would also have greater media-­buying powers in a tough climate for the media, and I would think there are also bound to be savings from a slimmer workforce. A £20m estimate of synergies from the deal is therefore very plausible, probably even pretty conservative. It could be more.”

Barr, whose other drinks include Rubicon, Strathmore and Tizer, employs just under 1,000 staff, of which 430 are at Cumbernauld. Britvic employs 3,500, about 300 of them at Hemel Hempstead.

There is also a question over whether Barr will continue with its plan announced earlier this summer to open a factory next year in Milton Keynes as Britvic would give it much greater access to the south of England and big multiple customers such as Tesco.

The merger talks, which Barr initiated with Britvic, whose brands include Robinsons and Tango, and Pepsi under licence, were announced on 5 September. The deadline for a firm merger offer to be made is 5pm on 3 October.

Shore Capital forecasts interim pre-tax profits at Barr to have dipped 1 per cent to £16m from £16.2m in the same period of 2011, hit by a mixture of strong commodity prices and poor summer weather.

The broker predicts an interim dividend of 2.63p, up 8 per cent on the previous year following the 3-for-1 share split.