AG Barr must hold strong after merger

Thursday 15 November 2012

There is no doubt that the £1.4 billion merger between AG Barr and Britvic announced yesterday will benefit both companies.

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While there is obvious enthusiasm for the growth potential of what will be one of the biggest soft drinks companies in Europe – with some of the most popular brands including Robinsons, Tizer, Irn-Bru and Tango – the deal also raises troubling long-term questions.

Although AG Barr is the smaller partner, its higher stock market rating means this is seen as a reverse takeover, with Barr's chief executive Roger White to run the merged company. After a disastrous summer for Britvic, in which a drop in sales due to the exceptionally wet weather was compounded by the recall of Fruit Shoot drinks because of safety concerns about the cap, AG Barr appeared as a knight in shining armour to the debt-ridden Britvic.Locating the legal headquarters of Barr Britvic Soft Drinks plc in Cumbernauld may allay initial concerns about the nerve centre of the Scottish operation being transferred south. However, given the scale of production and size of the market in England and the fact that operational headquarters will be at the Britvic head office in Hertfordshire, the importance of the Scottish HQ is all too likely to diminish over time. The rationalisation required to achieve expected annual savings of £35 million will result in up to 500 employees losing their jobs. Just who, where and when will depend on how the reduction in headcount (of between 8% and 12%) and places of business is achieved over three years. Even with a pledge that "Scotland's other national drink" will continue to be made only in Scotland, there must be concern for the future of the Scottish workforce in Cumbernauld and Forfar. AG Barr has already recognised the strategic importance of a significant presence south of the Border, with regional sales, distribution and production centres and plans to build a new factory in Milton Keynes. There were certainly no grounds for confidence from yesterday's employment statistics. For a second successive quarter unemployment rose in Scotland but fell across the UK as a whole, suggesting (even if the south of England has benefited from an Olympics boost) that recovery will be more sluggish in Scotland.The list of Scottish household name companies which have seen decision-making move south as a result of mergers with larger English firms ranges from insurance to whisky distillers. Reverse takeovers, however, provide no guarantee of control moving in the opposite direction. The Royal Bank of Scotland's acquisitions, including that of NatWest, has resulted in only 3 to 4% of the RBS group's customers being in Scotland. That prompted Sir Philip Hampton, the bank's chairman, to warn this week that RBS could move its head office out of Edinburgh if conditions in an independent Scotland were not favourable. Whether that is a straw in the wind indicating the direction of big business thinking remains to be seen. Nevertheless, it should not be ignored, even for a merger which has the compelling industrial logic of the AG Barr-Britvic union. Both companies stand to gain but that ought not to be at the expense of the Scottish economy. Will Irn-Bru live up to its promise to get us through?

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AG Barr must hold strong after merger

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