1.
Evaluate the case for the merger.
·
What are the positives and benefits? What should work well?
·
What are the negatives and potential risks? What problems might
occur?
Before the merger AG Barr was the maker of Irn Bru and Britvic was
the producer of Tango. After the merger the new combined company is named as
Barr Britvic Soft Drinks plc and its estimated annual sales is more than £1.5
billion. After the merger, Britvic
shareholders own 63% shares and AG Barr shareholders own 37% shares.
Followings
are the positives and benefits of merger between AG Bar and Britvic:
They will get a chance to
cut their cost in difficult markets. Where AG Barr is strong in certain market,
then it will be easier for Britvic to go in that market and vice-versa.
The newly combined company
will be benefited from scale production.
Loyal customers of both the
company will be buying the products of the newly merged company. There is a
high chance of shift from another brand to the company’s brand.
Britvic is a bottler for
Pepsi by which Barr will be also be in relation with Pepsi. It will help to
increase their sales. Also Barr will be able to sell their products to the
customers of Britvic.
Barr will get extra benefit
as the main vision of merger is to get benefit. For instance, it owns 37% of
the share of the combined company and will contribute to only 16% sales by
which it will have a return of 23%.
Britvic will also be
benefitted from the Barr. Barr makes an operating profit of 14%, where Britvic
makes only 9%. Although Britvic’s half of the turnover comes from low margin
bottling, Barr will help Britvic to narrow the gap.
The company will also get
huge cash flow which can be used to cover the debt of Britvic which is around
£600 million. Britvic can take advantage to cover its debt because Barr is
almost debt free.
With the combination they
will better get a chance to compete with coke by gaining some market shares.
Negatives
and potential risks:
When merger takes place
there is high chance to lay off their staffs. Here, Britvic will lay off their
500 staffs. By, doing so the employees remained in the company will feel
unsecure and will not be motivated towards working.
Britvic owns 63% share and
Barr owns only 37% share, however Barr seems to gain more benefit. Here, Barr
contributes to 16% of the total sales and will get 23% revenue which might be
disadvantageous to Britvic.
Barr getting in relationship
with Pepsi does not mean that it will get benefitted. It is very hard to shift
customers from one brand to another brand.
Although Barr will get a
chance to sell their drinks to the Britvic’s customers but it might be very
difficult in the case of French drinkers.
One of the most negative things
is that Britvic has a net debt of £600 million whereas Barr is almost debt
free. It may hamper the economic condition of the newly combined company. Also,
if the debt of Britvic increases, the profit of Barr will be lowered.
If Britvic fails or go for
bankruptcy, Barr too will be bankrupt. So, special consideration should be
given.
Customer dissatisfaction for
one product may hamper another product. For instance, if a loyal customer of
Barr has a bad experience with the service or products of Britvic, then the
customer may shift from Barr to other brand as Barr and Britvic are combined.
Hence, there is a high chance of customers shifting to another brand because of
their customers’ dissatisfaction.
Britvic’s half of the
turnover comes from a low margin bottling hence, merger with Barr may not have
helped Britvic to resolve their problems.
As market of soft drinks in
UK is growing by less than 2%, merger between these two companies may not help
to increase their market share significantly.
Although they owns decent brand but it might not be possible to compete with number one brand Coke.
2. What advice would you
give the newly formed Board?
·
The newly formed company should support
each other brands.
·
They need to maintain an effective
communication.
·
Also the newly merged company’s senior
leaders can lead the effort.
· The newly formed company may research its audiences. For instance, asking the audience what they want and how they wish to be connected with the company.
·
Training and supporting staffs and
providing facilities, bonus and rewards.
·
Also if they need to hire people they
need to hire most competitive people in their company.
·
The company should have the same vision
and mission.
·
They should support each other in the
marketing to gain more customers.
·
Shareholders of Britvic are little bit
confused. So, management team must solve their problems.
·
They need to invest more capital so that
it can go for large scale.
·
They need to develop strategies by which
they can compete with Coke.
· In
addition they need get synergies with annual savings, procurement savings and
supply-chain enhancement.
 | ||
| Figure: Britvic and AG Bar merger |
 |
| Figure: Drinks brands Irn-Bru and Robinsons squash |
 |
| Figure: Product of AG Barr |
 |
| Sources: http://www.thisismoney.co.uk/money/markets/article-2233104/Britvic-lose-500-jobs-AG-Barr-merger-deal-agreed.html |
 |
| Sources: http://www.thisismoney.co.uk/money/markets/article-2212015/Barr-Britvic-takeover-deadline-extended-dispute-delays-merger.html |
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Carey, ‘Making mergers succeed’, Harvard Business Review, vol. 78, no. 3
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https://www.microsoft.com/en-us/news/press/2011/feb11/02-11partnership.aspx
[Accessed on 16th March, 2013]
http://www.thompsondunn.com/newsletter3/article7.htm
[Accessed on 16th march, 2013]
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