Both companies have greeted the CC’s green light as a positive step, but reaffirming his ‘hold’ recommendation on both firms, analyst Damien McNeela from Panmure Gordon said he did not “see any particular value in either company at current levels”.
Britvic and AG Barr are not allowed to re-enter a formal merger process until the CC publishes its final report on July 30, and McNeela said a “strong strategic and operational rationale” remained for the merger.
“The question the market has been posing though is how much more will AG Barr be willing to give up if a merger does go ahead? Arguably, Britvic is not the wounded animal it was last year.”
Under the agreed merger terms, A.G Barr shareholders were to receive 37% of shares in the enlarged company with Britvic shareholders receiving 63%.
But McNeela said that, based on current market capitalisations, these figures would be more like 33% for AG Barr and 67% for Britvic.
Recently, Britvic announced plans to cut costs by £30m per annum by 2016, and McNeela said he calculated that this accounted for circa. £15m of the planned £40m merger synergies.
“In addition, Fruit Shoot has made a positive return to the market, concerns over net debt levels subsides and Simon Litherland has replaced Paul Moody as CEO.”
Arguably, Britvic deserved improved terms, McNeela said. “But it remains to be seen how much AG Barr are prepared to give up.”
Glossing his view that there was no real value in either Britvic or AG Barr's stock at current levels, McNeela also highlighted a "read across" from key competitor Coca-Cola Enterprises (CCE), which today issued a profit warning.
CCE cited "unexpectedly persistent" weak macroeconomic environment, poor weather and the impact of excise tax hikes in France, and a very competitive market in Great Britain.
"This we believe is not particularly encouraging across for both AG Barr and Britvic which face the same operating conditions," McNeela added.