For Britvic/Barr it looks too soon, and for Coca-Cola it’s too late…
So does anyone fancy parting with the thick end of a billion quid for two of Britain’s most iconic home-grown drinks brands?
That was the come-and-get-‘em message from GSK chief executive Sir Andrew Witty last week as he revealed the pharmaceuticals giant’s plans to “review” its Lucozade and Ribena brands by the summer.
Judging by the flurry of activity among banks and corporate financiers this week, the resounding answer is yes, but there is no consensus on where they might end up and the OFT’s decision to refer the Britvic/AG Barr merger to the competition commission has already thrown a potentially massive spanner in the works.
Witty says the brands’ combined £750m in sales cannot detract from the fact they are “poles apart” from GSK’s core strategy of creating global OTC brands from its £26bn pharmaceuticals empire.
Second-biggest non-alcoholic drinks brand in the UK, with UK sales up 2.7% to £387.3m [Nielsen 52 w/e 29 December 2012]. The frustration is that the Olympics failed to rejuvenate sales of the Sport variant. The UK accounts for more than two thirds of total sales
UK sales were down 0.6% last year to £150m [Nielsen 52 w/e 29 December 2012], with cordial sales under some pressure, but juices are doing well
Lucozade is the second-biggest soft drinks brand in the UK according to Nielsen (52 w/e 29 December 2012) but two-thirds of its sales are in GB, and while it has enjoyed some success in Nigeria, Singapore and Malaysia - and recently formed a fledgling Chinese business - its lack of global reach, plus GSK’s limited drinks infrastructure outside the UK, means it is seriously underpowered globally compared with Coca-Cola and PepsiCo.
These giants are now among a raft of companies believed to be in the running, although such are the brands’ appeal, everyone from Nestlé to a host of private equity houses are said to be interested.
So too is Britvic, or what hopes to become the £1.5bn Barr Britvic Soft Drinks plc. But any prospect of it bidding for one or both of GSK’s brands looks more challenging with its proposed merger thrown into doubt by the OFT.
“If their deal doesn’t collapse and you were to say to Britvic/Barr that in a year’s time this would be on the market, they would be delighted,” says one leading retail financial source.
And whereas for Britvic/Barr the review might have come too soon, for Coke some say the opposite is true. “This feels like a deal that’s 10 years too late,” says Robin Knight, a partner at advisory firm Zolfo Cooper and a former Coca-Cola executive, who believes a private equity sale is more likely. “A decade ago Lucozade and Ribena would have been an amazing bolt-on for Coca Cola and they were taking an active interest, but that horse has bolted. And I just don’t think Britvic would be able to find the £700m-£800m this is going to take, even if the OFT allowed it.”
Coca-Cola and PepsiCo’s commitment to Powerade and Gatorade may now limit their interest.
Others suggest a joint venture or distribution deal with GSK as co-owner is now the most likely outcome. Much interest will focus on the Far East. Japanese company Suntory, which bought European drink maker Orangina Schweppes from private equity firms for £2.25bn in 2009, is one name in the frame - although it has a distribution deal with Barr in the UK and Orangina was cited in the OFT case.
GSK has put massive investment behind the brands, especially Lucozade, including multimillion pound sponsorship of F1 team McLaren, England’s Six Nations team and Olympic athletes including Mo Farah. And spending in 2013 will continue “absolutely as planned, including all our ad and promotional spend and investment in NPD,” says Peter Harding, general manager of GSK consumer healthcare Great Britain & Ireland.
But Witty admits keeping the status quo is unlikely and the original bottles of Lucozade and Ribena that sit in the entrance to GSK’s imposing Brentford HQ will surely, sooner or later, be in a new home.