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Whilst investors had been waiting for an announcement on 30 October regarding the proposed merger between Britvic (LSE:BVIC) and AG Barr (LSE:BAG), the companies, instead announced that they had filed for an extension for negotiations until 28 November.
Some of the ‘Nervous Nellies’ watching the news have decided that the announcement does not bode well for the consummation of the agreement. However, the companies clearly indicated that the reason for the extension was that “substantial progress has been made and the two parties are now at an advanced stage of discussions.” The unnerving part for investors may be that this is the second request for an extension.
The truth of the matter is that it is often much more difficult to work out the details in a merger than people understand. There are a plethora of issues that must be resolved and, whilst you can’t please everyone all the time, one of the burdens of a merger is to do exactly that. For instance, in this merger, Britvic shareholders are uneasy about the share-split ratio which is based on the companies’ market caps. Britvic shareholders would prefer, understandably so, to base the split on profit contribution.
Both institutional investors and the man on the street need to understand that, in addition to the normal complexities of a merger, there is business as usual which can temporarily stall negotiations, if for nothing more than a matter that needs executive attention. It’s reasonable to expect that the the October recall of Britvic’s Fruit Shoot drink demanded some executive attention and that it’s financial impact, of necessity, would have some additional direct impact on the negotiations.
Sales at both companies have less than desirable this year, even with the Olympic and Jubilee impacts. Nonetheless, analysts continue to agree that this merger may be one of the best ever given the obvious synergies available, from geographic penetration to marketing styles as well as product offerings. Some insight here: how the merger will go to market is often a sticking point in negotiations. For instance, one side may want to consolidate sales forces to reduce headcount costs. The other side may argue that consolidation will reduce sales because of a lack of expertise in the sales force of programs and products. Fact is, there are more strategic operational and financial considerations than most people realize.
At any rate, I’m putting my money on the talks being fruitful with a new company announced before 28 November. This deal is going to fizz, not fizzle.
The share price in both companies has risen, if only slightly, since the original announcement. Britvic shares rose above 361.00 this morning after opening at 359.4, but drew back to 360.3 by noon. AG Barr shares are down on the day from 447.3 to 445.1, including an 8.00 pence drop and bounce just before 9:00 am.
