‘Britvic not the wounded animal it was last year’: City analyst on AG Barr merger

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.