Comment: Merger is rock–steady, just like Irn–Bru’s girders

Martin Flanagan
Martin Flanagan
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AG BARR’s £1.4 billion merger with bigger soft drinks group Britvic looks like carbonated gold dust. Talks between Cumbernauld-based Barr and its merger partner were first revealed in September, but the intervening period has done little to dilute the compelling rationale for the deal.

The corporate marriage creates a panoply of strong products, including Irn-Bru, J20, Pepsi, Rubicon, Robinsons and Tango.

There is strong complementarity of UK coverage, with Barr far stronger in the north of England and Scotland (even though it has been making strides down south), and Hemel Hempstead-based Britvic with a pronounced presence south of the M62.

A merger will also give the new Barr Britvic Soft Drinks company a wider customer base, helping to offset periodic industry headwinds such as bad weather and rising commodity prices.

Barr’s eye-catching profits progress has been helped by strong profit margins in the convenience stores where it gets a lot of its sales.

Britvic, whose trading progress has been less surefooted in the past few years, with an embarrassing profits warning last summer, still has a useful bigger exposure to the big supermarkets, pubs and clubs. Less juicy margins, perhaps, but it will add depth and ballast to the new entity’s offering. This is a soft drinks merger that will cover the customer waterfront. There is also a decent foreign business.

As for management, Britvic’s boardroom did itself few favours with the profits warning, not least underestimating the potential shortfall in the first warning, to be succeeded by a much more damaging assessment within days.

By contrast, Barr’s management, under chief executive Roger White, is highly rated by the City. The profits warning must have helped White’s already strong case to take the key executive role in the new entity, even if Britvic fills the posts of chairman and finance director.

A few drinks analysts have said they believe the reason the takeover talks dragged on somewhat was quite likely to be White’s meticulousness in due diligence.

Sheer scale, buying benefits, distribution efficiencies, product range, de-duplication savings, extended geographic reach, an injection of management credibility… what’s not to like in the new enlarged group’s bubbles in the glass?

King’s well-balanced plan is working a treat

THE template of Justin King’s Sainsbury’s is to be upmarket enough to tempt some of the Waitrose and Marks & Spencer food-with-glitter franchise, while retaining a value offering to ensure Asda, Lidl and Tesco don’t steal its lunch. Being all things to all men can be a recipe for falling between stools. However, Sainsbury’s has patently kept the stools balanced, as its latest interim trading numbers again show. This trading resilience has been a byword for the company for years now.

Profits margin at the company were unchanged, but food retailing is not a margin‑driven game. Supermarkets are about volumes.

In that respect, the industry resembles holiday operators and construction. Get as many customers, or contracts, in the door as possible to keep the staple income ticking along nicely.

Get the sales offer and profits right, and let the margins take care of themselves. Management stability (hello Morrison’s, Tesco…) at Sainsbury’s hasn’t hurt, either.