Comment: Britvic move is striking while the Irn

Britvic left blood in the water in July when the cost of recalling its Fruit Shoot range due to a cap design flaw ballooned from a few million pounds to up to £25m in little over a week. A flurry of City profit warnings followed.

The recall alerted not just AG Barr, but drinks leviathan Diageo and private equity groups to the possibility of an attractive acquisition bobbing in the corporate carbonated water.

AG Barr chief executive Roger White would not have sold the idea of such a strategic move to the Scottish group’s board purely on Britvic’s fleeting reputational difficulties with the City. But the recall can’t have hurt the thought processes on a deal that could – not uncharitably – be viewed as a reverse takeover.

It will be interesting to see if that arch-dealmaker and brand-swallower, Paul Walsh at Diageo, allows this drinks merger to go ahead without attempting to gatecrash. Private equity interest may be more difficult to convert into action as it is still not easy to raise money in the markets for deals of this size.

One thinks Walsh would have to move sharpish, however. For all AG Barr and Britvic’s claims that talks are at an early stage, that seems to be belied by the precise share splits already having been worked out; 63 per cent of any merged company being owned by Britvic shareholders and 37 per cent by AG Barr’s investors.

That seems to suggest discussions on respective company valuations have gone some way down the line. Similarly, there will be no 11th-hour horse-trading on the top jobs.

Yesterday’s joint announcement said AG Barr’s White would be chief executive of any new business, with Britvic’s chief financial officer John Gibney doing the same job in the merged entity.

Gerald Corbett, chairman of Britvic, would become chairman of the board of the combined group, while Ronnie Hanna, chairman of the smaller Scottish company, would become deputy chairman of the group. Again it implies greater progress on a deal than divulged.

AG Barr’s hand is strengthened in the negotiations by its more impressive trading performance, particularly against the backcloth of a dank summer.

This is partly due to the Cumbernauld-based firm, whose brands  include Irn-Bru and Tizer, being more geared to the impulse-buy market of corner shops and cash and carry. This is a less-competitive arena, with greater possibility of retaining better profit margins than in the grocery multiples largely targeted by Britvic, where price promotions and Bogofs – or buy one get one free offers – crimp margin possibilities.

Given that marketing dichotomy, it is unlikely that White could replicate AG Barr’s margins at Britvic, whose brands include J2O, Robinsons and Tango.

But there should be other synergies such as the closure of one head office and better buying power in areas like raw materials – such as aluminium, steel and sugar – and media-buying.

Britvic would also give AG Barr greater access to the south of England than it currently has from its factory in Wales and a planned one in Milton Keynes.

The Scottish group looks to have struck while the “made-from-girders” Irn-Bru is hot (so to speak).

Toon Army and Ashley will be less than happy

IT WAS a game of two halves yesterday for Mike Ashley, owner of Sports Direct and Newcastle United FC. Sports Direct’s latest bumper sales rise underlined that, with JJB Sports out of the game, Ashley has lots of major sports shirts and trainer suppliers over a barrel.

Adidas, Nike etc will not be whooping as Britain’s sports retail leisure market looks wrapped up: Sports Direct high, wide and… well, two out of three ain’t bad… and JD Sports at the fashionable, preppy end of the spectrum.

But, then, in an injury‑time twist, Sports Direct shareholders voted down the company’s latest “super-stretch” bonus package, which had looked likely to be triggered following strong trading. The Toon Army won’t be happy; they hoped some of Ashley’s extra cash would be spent on players.

Comment: Britvic move is striking while the Irn–Bru is hot