Soft drinks and hardball

Britvic appears to think it can get through without Irn Bru

For a fizzy, sugary flavoured drink, it's striking what a special place Irn Bru holds in Scottish affections and dental cavities.

I'll dare to suggest that that might have rather less to do with the product than with the marketers and advertisers, who have, for decades, consistently shared the brand's sense of humour with its customers.

So when it seemed Irn Bru's Cumbernauld-based owner, AG Barr, was being merged with Britvic, great was the sense of loss that Scotland was losing its Mcfizz and heading down the M1 to an operational base in a soulless part of Hertfordshire, where nothing of note has ever been made from girrrders.

AG Barr was to be one third of the merged entity, reflecting Britvic's bigger market capitalisation, and in turn, its reach through distribution of Pepsi (which it bottles), Tango, Robinson's and Fruit Shoot.

So it was feared that we faced a familiar tale - another Scottish business institution was being lost to corporate power far, far away.

Well, it doesn't look that way now. Barr's chief executive Roger White was taking charge of the new company. And judging by events following the announcement of the agreed merger last September, this now looks like a merger that was more of a takeover by AG Barr.

That would help explain why Britvic, under new leadership, is showing every sign of walking away from merger.

Fruit Shoot-out

To fill you in, it can do so because the Office of Fair Trading stepped in, and referred the proposed merger to the Competition Commission. It has taken several months to investigate the soft drinks market in a lot of detail, trying to figure out whether the combined entity would be sufficiently big and powerful to skew the market, forcing up the price of Irn Bru in particular.

Its answer, issued on Tuesday morning, is "no, it wouldn't", though it may be more nuanced when we see the full report.

In the meantime, the terms of the proposed merger lapsed in February. The City rules say a new deal can't be proposed until the Competition Commission's final report has been issued, which has to happen by the end of July.

AG Barr still sees the industrial and financial logic of going ahead with the "merger". And of course, it won't want that to be on a basis that leaves its shareholders worse off than the deal struck last year.

Britvic sees things differently. It says things have changed. It's under new management. The savings it told shareholders it could expect as recently as February are no longer to be found (or perhaps they're being found by other means). And it's got a new strategy with international expansion in mind, much of it built around Fruit Shoot, with deals to distribute in more American states and across the parched plains of India.

What it's not quite spelling out is that it's in less of a hole than it was. Following several disappointing years, it lost around £25m from a recall of its Fruit Shoot drinks, and that was just financially. Reputationally, it was costly too.

In short, the chairman says: "The company is in a different place to last summer." Its shares have been performing better than Barr's. And it's not going to have terms dictated by a Scottish company with only half of Britvic's £1.2bn market capitalisation, and a sixth of its workforce.

Jobs and cocktails

Both sides say they can walk away. That would suit the Barr's workforce, which has, understandably, been nervously eyeing the cost-savings the merger was supposed to deliver.

Either way, Britvic workers face a tough cost-cutting programme under the new boss's plans. Simon Litherland wants to take £30m out of his cost base within three years - starting with more than 300 job cuts through closing two production plants, in Chelmsford and Huddersfield, and a Belfast warehouse.

If they do go separate ways, AG Barr would surely continue its expansion into the English market. It's soon to open a production plant in Milton Keynes, and it's done well with its premium Rubicon brand, which has an established reach into ethnic minority markets.

While Britvic is unlikely to be on the acquisition trail so long as its debts weigh it down, analysts are wondering out loud if AG Barr could be interested in the soft drinks that Big Pharma company GSK is thinking of putting on the market, or at least "strategically reviewing". That includes the veterans Lucozade and Ribena, which would mix with Irn Bru to produce a very different type of cocktail.