A £1.4 billion deal to merge Irn-Bru owner AG Barr and fruit juice firm Britvic into Europe’s biggest soft drinks firm was swept off the table last night after the Office of Fair Trading raised concerns.
The OFT announced it could not rule out the possibility prices would rise if it allowed the tie-up to go ahead, and referred the proposal to the Competition Commission.
The commission is expected to make a ruling on the deal later this year, but the delay means the offer made by Barr as part of the merger, structured as a reverse takeover, will now lapse.
In the surprise move, the OFT said surveys of the public showed some Britvic brands were “sufficiently close alternatives” to Barr’s offerings to raise concerns over competition in a market where Coca-Cola would be the only other major player.
Decision-maker and OFT chief economist Amelia Fletcher said: “Our investigation has identified competition concerns relating to this deal with respect to Barr’s Irn-Bru and Orangina brands which could lead to higher prices for consumers.
“In addition, we could not rule out the possibility of further competition concerns arising from combining the overall Britvic portfolio of soft drinks with the entire Barr portfolio.
“We are therefore referring the merger to the Competition Commission for an in-depth investigation.”
As well as Irn-Bru, Cumbernauld-based Barr owns Strathmore Water whose headquarters are at Forfar Orangina and Rubicon.
Britvic’s brands include Robinsons squash, Fruit Shoots and Tango. The Hertfordshire group also holds the UK licence for Pepsi.
The companies issued a joint statement, saying they “noted” the OFT’s decision.
“Publication of the full text of the OFT’s decision is awaited,” they said. “AG Barr and Britvic will continue to work together and will make a further joint announcement following their combined review of the OFT’s full decision.”
It is understood the concept of a merger is likely to be revisited following the Competition Commission’s final ruling, but the terms of any deal would have to be renegotiated at that time.
Under the terms of the failed agreement, AG Barr investors would have owned 37% of the new group’s share capital, with Britvic’s shareholder equity accounting for the remaining 63%.
Barr boss Roger White had been earmarked as chief executive of the combined group, which was to be based in Scotland, with Britvic’s Paul Moody stepping down. Up to 500 jobs were expected to be cut from a combined staff of 4,200 following the deal’s completion.
Last night, Britvic swiftly moved to announce the appointment of its GB managing director Simon Litherland as its new chief executive, with Mr Moody standing down as planned.
It also said 2013 earnings, before interest and taxes, were expected to reach between £125m and £131m, with a capital spend of around £40m and continuing debt reduction thanks to a pre-exceptional cash flow of at least £70m.
Shares in Britvic closed down 8.7% at 420p, while Barr stocks slipped 7.1% to 515.5p.