Addressing delegates at the InnoBev Global Beverages Congress 2013, organized by Zenith International, co-founder and MD of corporate finance advisory firm McQueen, Shaun Browne, predicted a fight among private equity players for the iconic GlaxoSmithKline (GSK) energy and sports drinks brand, if it were put up for sale following an ongoing strategic review.
Media reports suggest that, if sold, Lucozade and Ribena could fetch up to £1bn ($1.53bn). But McQueen said that potential trade buyers’ priorities had shifted in recent years, and they were unlikely to bid for the brand.
No easy Lucozade solution…
During a panel discussion touching on UKcompetition concerns, Zenith International chairman Richard Hall asked McQueen: “If a major competitor were to buy Lucozade then that would have competition implications. Is there an easy solution for Lucozade?”
McQueen replied:“I don’t think there is. I think if Lucozade had been put up for sale 10 years ago, then the field of potential trade buyers would be significantly greater than it is today.
“I think in the last 10 years, a number of potential buyers have laid out there own stalls, in terms of the direction they want to go, creating brands that are global in nature,” he added.
“For most of the large trade players, they don’t actually want the leading energy drink brand in the UK, recognizing that 80% of its turnover is just in the UK,” McQueen said.
“So I think that most of the large international trade buyers will probably avoid the auction, which is why I speculated at the end that it may well end up in the hands of private equity.”
Announcing the strategic review of Lucozade and Ribena when it reported Q4 2012 results in February, GSK hinted that western-facing brands did not fit its focus on emerging markets likeChinaorIndia.
Responding to a question from BeverageDaily.com regarding competition issues delaying the £1.4bn ($2.15bn) merger of Britvic and AG Barr, McQueen noted that the UK Office of Fair Trading (OFT) was being abandoned, with its powers moving to the Competition Commission (CC).
“But in the meantime, they’re still operating under the old regime, where the OFT looks at a potential merger and decides whether to refer it to the CC,” he said.
‘Nightmare for all involved’
Too many potential transactions were referred to the CC, he added, who then began an investigation taking six to 12 months that “cost a shed load of money for each of the participants, because they get asked more questions that they can cope with”.
“This creates an enormous amount of uncertainty in the marketplace, and is a nightmare for all involved,” McQueen said.
“No-one wants their merger or acquisition to be referred to the CC. So they will make various promises to the OFT in advance. ‘If we sell this, if we sell that, will you please not refer us to the CC,’” he added.
“Now this instance, and credit to them, both parties [AG Barr and Britvic] turned up and said ‘this is outrageous, our combined market share is still only half of our main competitor in the UK,’” McQueen explained.
“So there’s no way the regulatory authorities should ban this proposed tie-up. In fact, it gives an opportunity for a credible No.2 competitor in the UK market. Therefore, we’re going to dig our heels in and fight this. But it will last for another six to nine months,” he said.