Case study of week 16

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:

ü  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.

ü  The newly combined company will be benefited from scale production.

ü  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.

ü  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.

ü  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%.

ü  Britvic will also be benefited 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.

ü  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.

ü  With the combination they will better get a chance to compete with coke by gaining some market shares.

Negatives and potential risks of merger between Barr and Britvic:

·         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. 

                                                 

References:

Johnson, Whittington and Scholes (2011) Exploring Strategy, 9th Edition, Pearson Education, Chapter 6

Johnson, Whittington and Scholes (2011) Exploring Strategy, 9th Edition, Pearson Education, Chapter 10

Phillippe Haspeslagh, 1999, FT Mastering Strategy.

P. Gaughan, Mergers, Acquisitions and Corporate Restructurings, 4th edition, Wiley, 2007.

G. Johnson and K. Scholes (eds), Exploring Techniques of Analysis and Evaluation in Strategic Management, Prentice Hall, 1998.

J. Bower, ‘Not all M&As are alike’, Harvard Business Review, vol. 79, no. 3 (2001), pp. 93–101.

Y. Doz and G. Hamel, Alliance Advantage: The art of creating value through partnering, Harvard Business School Press, 1998 

 [Accessed on 16th March, 2013]

http://www.thompsondunn.com/newsletter3/article7.htm

[Accessed on 16th march, 2013]