Could AG Barr spring shock bid for GSK brands Ribena and Lucozade?

After The Sunday Times ​ran an article indicating that AG Barr could approach private equity houses Lion Capital and Blackstone with a view to buying GSK soft drinks brands Lucozade and Ribena, we gathered analyst opinions on the rumor, although Barr itself told BeverageDaily.com that it would not comment on "media speculation".​

Phil Carroll from Shore Capital, told BeverageDaily.com: "The fact that two private equity houses were named means there may be something in the rumor, but I have to say it did initially surprise me coming so shortly after the Britvic merger breakdown, since if that was going to go ahead, this would definitely not have happened."​

"But there is a logic in the tie-up between Barr and private equity: the latter get a very skilled operator in the sector in return for providing the finance."​

Damien McNeela, an analyst at Panmure Gordon, wrote in a note this morning: "We think the broad rationale for this deal is good as it gives Barr access to export markets and entry into the sports drink sub-category via Lucozade."​

Access to dilutables and RTDs​

The purchase would also add dilutable and ready-to-drink (RTD) products to Barr's portfolio via Ribena, McNeela added.

"We think cost savings could be quite significant given the scope to close plants and bring production into its new Milton Keynes site," ​he said.

The market consensus seemed to be settling on a price for the two brands of circa. £1bn, McNeela said.

"Our valuation range is £1bn to £1.2bn based on the combined sales of Lucozade and Ribena being £600m, to which an industry average EBITDA margin of circa.16% is applied indicating an EBIDTA of £96m," ​he added.

Therefore, McNeela said that applying a Price/EBITDA multiple of 10x to 12x indicated a price of £1bn-£1.2bn.

"If AG Barr were to do a deal with private equity, the most likely, in our view, would see the acquired brands placed into a joint venture with PR,"​ McNeela wrote.

Suntory Beverage has 'cash to burn'​

He explained that such a scenario would allow AG Barr to insert a 'call option' allowing it to buy the private equity players out at some point in the future.

Alternatively, private equity could take a stake in Barr injecting the required equity for the company to bid with.

Last week Britvic rejected AG Barr's revised all-share merger offer​ but the latter could spring a major surprise if it were successful in its joint bid for the GSK brands.

Other rumored suitors include Blackstone and Lion in their own right (perhaps in tandem), Orangina-owner Suntory and Coca-Cola Enterprises (CCE).

Asked if a Barr plus private equity was more or less likely to happen than an approach from private equity alone, Suntory or CCE, Carroll said: "I suppose it will come down to the highest bidder ultimately, in terms of presenting a deal to GSK in the form they want it, in terms of making assurances regarding redundancies, and taking over the manufacturing side of things.​

"But I would have thought that Suntory would be at the top of the pile, given that they do have cash to burn,"​ Carroll added.

Aging society in Japan limits growth​

Suntory's initial public offering (IPO) earlier this year - Suntory Beverage began trading on the Tokyo Stock Exchange on July 3 - means it has up to $4.9bn to spend on acquisitions, and Yuuki Sakurai, CEO of Fukoku Capital Management, told Bloomberg on July 3: "Suntory is very well known in Japan but it is rather an aging society, and they cannot seek for very large increases in volume. ​

"So I think they're going to focus on Asian and European market too, like they have acquired Orangina Schweppes in France, they also bought some companies in New Zealand. I think they are seeking a global business chain."​