* Firms don't think deal would substantially cut competition
* Say will work with Competition Commission
* Commission's investigation expected to take six months
* Shares in Britvic down 8 pct, A.G. Barr 3 pct
By Neil Maidment
LONDON, Feb 14 Soft drink firms Britvic
and A.G. Barr will work together to show that their
proposed merger will not reduce competition after the deal was
referred to Britain's anti-trust watchdog.
The tie-up, agreed in November, would bring together
Britvic's PepsiCo drinks plus Robinsons and Tango brands
and Barr's Rubicon and Irn-Bru, the orange fizzy drink that
out-sells Coca-Cola in Scotland.
But the all-share deal to create one of Europe's biggest
drinks firms was referred by the Office of Fair Trading to the
regulator on Wednesday due to competition concerns over certain
Shares in Britvic were down 8.5 percent at 384 pence at 1156
GMT, with smaller rival Barr down 3 percent at 500.5 pence.
The two companies said on Thursday there was compelling
rationale for clearance.
"A.G. Barr and Britvic believe that the merger will not
result in a substantial lessening of competition and that they
will be able to demonstrate this to the Competition Commission."
The OFT's referral centres on its concerns around a loss of
competition between brands such as Britvic's Pepsi and Tango and
Barr's Irn-Bru and Orangina.
But analysts believe this could be overcome.
"The competition concerns ... could be dealt with through
the termination of licensing Orangina in the UK, and the sale of
smaller non-core brands," Canaccord Genuity analyst Wayne Brown
"Orangina accounts for around 5 to 10 million pounds of
sales for Barr, hardly a competitive stumbling block in a soft
drinks market worth 9 billion," he said.
The Commission's investigation is expected to take six
months. The companies said that if clearance were obtained they
would reconsider the terms of the merger at that time.
The rationale for the deal is a greater buying power as an
enlarged group, while Barr would benefit from Britvic's ties
with big UK retailers, and Britvic from Barr's relationship with
independent firms. The deal would also open up Britvic's
international markets to Barr.
The combined group's UK market share would rise to 14
percent compared with Coca-Cola's 28 percent.
The competition referral marks another setback for Britvic
which last year had to recall its Fruit Shoot children's drink
over faulty caps. This hit sales and contributed to a 19 percent
fall in group annual pretax profit.
Under the original merger agreement, approved by
shareholders, the combined group - worth just under 1.6 billion
pounds at current market value - was to be run by Barr chief
executive Roger White and would have resulted in a 63 percent
stake for Britvic shareholders with AG Barr investors holding
On Wednesday it appointed Simon Litherland as CEO with
immediate effect. He replaces Paul Moody, who is retiring.
In November, Britvic posted a 5 percent rise in first
quarter revenue and said it would step-up distribution of Fruit
Shoot in the United States and Spain this year.
Barr said in December revenue for the 18 weeks to Dec. 1 had
risen 9 percent.