PepsiCo Inc. (PEP:US), the world’s second- largest soft-drink maker, is backing a merger of Britvic Plc and A.G. Barr Plc (BAG) which will create one of Europe’s leading beverage companies with sales of 1.5 billion pounds ($2.4 billion).
Pepsi supports the transaction and won’t exercise its right to end agreements for Britvic to distribute a number of its main brands in the U.K. in the event of a change of control, the U.K. companies said today in a joint statement confirming the deal.
Britvic’s agreements with Pepsi had posed the largest risk to the combination of the U.K. companies, Wayne Brown, an analyst at Canaccord Genuity in London, said when talks on the deal were first announced Sept. 5. The Purchase, New York-based company was regarded by Numis Securities analysts as a possible counter-bidder for the maker of Robinsons Barley Water.
“The key point to know is that clearly in announcing the merger this morning we’ve done so with the support of Pepsi,” Britvic Chief Executive Officer Paul Moody said on a conference call. “Therefore the relationship that Britvic enjoys with Pepsi will continue into the merged company.”
The companies have agreed “certain variations” to the contractual terms of their agreements which allow Britvic to sell brands including Pepsi, 7UP and Gatorade in the U.K. and Ireland until 2023, according to today’s statement. Moody declined to be more specific.
Under the terms of the all-share deal, Britvic shareholders will receive 0.816 new A.G. Barr shares for each share held and will own 63 percent of the enlarged company. A.G. Barr, based in Cumbernauld, Scotland, makes brands including Irn Bru and Tizer.
Britvic rose as much as 1.8 percent in London trading and was up 1 percent at 371.9 pence as of 8:19 a.m., valuing the company at 901.3 million pounds. A.G. Barr gained 1.8 percent to 440 pence, paring an initial jump of 5.3 percent and giving the company a market value of 513.8 million pounds.
Combining the businesses will create “significant” cost and revenue benefits, leading to so-called synergies of 40 million pounds a year by 2016, the companies said.
The combined business will be led by A.G. Barr CEO Roger White, with Britvic’s John Gibney as chief financial officer.
The companies are seeking to combat slower consumer spending in the U.K., their largest market. They will also have “significant presence in France and Ireland, and growing distribution of proprietary brands in markets such as the U.S.,” according to the statement.
Britvic is the second-largest supplier of soft drinks to the 7 billion-pound U.K. take-home market and is the biggest supplier to the pubs and restaurant industry, worth about 2.7 billion pounds, according to data from Nielsen Scantrack.
A.G. Barr ranks fifth by volume in the take-home market, which is dominated by Coca-Cola Enterprises Inc. (CCE:US) The proposed merger would create a business with take-home drinks volume of 1.04 billion liters in 2011, compared with CCE’s 1.77 billion liters. Big competitors include Danone and GlaxoSmithKline Plc.
Britvic, the larger company of the two, said in July that its full-year results would be at the bottom end of estimates, and it will suffer further losses this year after having to recall Fruit Shoot drinks in the U.K. because of damaged caps. The recall will reduce pretax profit this year and next by 15 million pounds to 25 million pounds, it said at the time.
Soft-drink sales in the U.K. this year have been hurt by an unseasonably wet summer, according to Britvic.
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