Yesterday Britvic rejected AG Barr's improved all-share offer and terminated joint discussions, saying the offer did not reflect current the market capitalizations of the two soft drinks firms. The move came after the UK Competition Commission (CC) gave the green light to any merger on July 9.
The move effectively scuppers hopes Irn-Bru brandowner AG Barr held out of forming a £1.6bn (2.4bn) turnover hybrid with PepsiCo bottler Britvic, since there is now six-month rule stating that Barr can't come back with a revised offer.
Panmure Gordon analyst Damian McNeela told BeverageDaily.com: “AG Barr offered marginally better terms but these were rejected. I don’t see AG Barr coming back, certainly not in the near term.”
Britvic said the revised deal - 65% Britvic, 35% AG Barr - represented "only a small improvement on the previous terms as announced on November 14 2012, and was at a considerable discount to the current market capitalization rates of the two companies".
Gerald Corbett, Britvic chairman, said: "Under Simon Litherland's leadership, our performance has significantly improved and this, combined with the £30m cost reduction plan and accelerating international expansion, means that our future is bright.
"The execution and delivery of this is now the absolute priority of the Britvic team. We wish Barr and its management team well. They are good people with a fine business."
Blow to Barr's hopes of value creation opportunity
The news comes as a blow to Barr, which had welcomed the CC's decision published Tuesday and said then it thought little had changed to alter its "previous conviction that a merger represents a unique opportunity for value for both sets of shareholders in the short, medium and long term"
Asked whether Barr might now pursue its M&A quest elswhere, McNeela said: “There are obviously opportunities out there for AG Barr to make further acquisitions, whether they go for full company acquisitions that is yet to be seen. Nichols is a possibility but so too are other brands.”
When AG Barr made its original offer, a deal was struck at 27% for Barr and 63% for Britvic, and McNeela said current market capitalizations indicated a ratio closer to 31.3% to 68.7%.
He wrote in a note this morning: "Britvic is undoubtedly in a stronger position following the actions it has undertaken, but we still think this is a missed opportunity for both companies to consolidate the UK soft drinks market and reap the operational and financial benefits of the transaction."
Britvic mounts 'successful defense'
Describing the new move by an ambitious AG Barr management team as "opportunistic", McNeela said that the Office of Fair Trading (OFT) referral to the CC on February 13 had given Britvic "sufficient time to compose itself and mount a successful defense".
Shore Capital analyst Phil Carroll said that Britvic had turned down an opportunity to create shareholder value, but added: "We can understand why both parties have taken their respective decisions. From Barr’s perspective, we are pleased to see it has not chased the deal at all costs, showing good capital discipline."
He added: "From Britvic’s perspective, we can understand why the Board would not accept a proposal that was less than the current value implied by the market, which, in our view, was how the original deal was struck."
Britvic will report its Q3 results on July 25 and McNeela said he expected to see only a modest trading improvement on volume trends in the quarter, which were negative across the firm's divisions at the interim stage.
Panmure Gordon's EBITA forecasts for FY2013 remained unchanged at £130m, he wrote, but the firm was adjusting forecasts for FY2014-16 upwards circa. 7% to £151m, £165m and £172m, "to reflect more challenging market conditions and the recently announced cost savings".