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Britvic takeover talk gathers pace with Fruit Shoot still off shelves

By Ben Bouckley , 24-Aug-2012

One industry source tells BeverageDaily.com that Britvic could be a takeover target following its ‘Magicap’ Fruit Shoot recall debacle, but doubts whether Unilever or Diageo would be likely suitors.

BeverageDaily.com understands that Fruit Shoot has still not returned to supermarket shelves in the UK, but that Britvic is now supplying retailers again with a view to sales from the end of August.

A manufacturing flaw with Fruit Shoot’s spill-proof ‘Magicap’ for PET bottles led to the brand’s withdrawal from sale (along with extension Fruit Shoot Hydro) across all markets bar the US, Australia and Ireland on July 3.

Reportedly, the recall (with millions of units pulled from shelves) was sparked when a six-year-old UK boy nearly choked on the ‘spill proof’ cap, which came off a Fruit Shoot bottle while he was drinking the beverage.

When Britvic announced its Q3 results in mid July, it said it was sourcing an after-market replacement for its spill-proof MagiCap but there would be a six week delay before it could resupply customers.

The replacement cap is used on other Britvic drinks and by rivals, and the firm is reassuring consumers that it is wholly safe.

Britvic management estimated in mid-July that the recall issue (and lost Fruit Shoot sales since mid-July) could cost up to ₤25m ($39.6m) while fears arose that the full-year profit hit could affect shareholder dividends.

Analysts scrambled to downgrade the firm’s full-year profit expectations, as Britvic’s share price fell to 260p on July 11. Although it has since rebounded (309p this morning), media reports have linked this to takeover talk.

Tittle-tattle or takeover battle?

However, one industry source (who wished to remain anonymous) told BeverageDaily.com that, given the current share price, a takeover was possible.

Britvic also released a bleak Q3 IMS on July 19, blaming weather woes, UK promotional pressure and the recall situation for a 7.6% year-over-year turnover decline.

“Management has a poor reputation given the acquisitions they have made and how things have been handled,” the source said.

An August 16 This is Money article cited Unilever, private equity player Permira and Diageo as potential suitors for Britvic.

Asked about these names the source said that Permira was probably the most likely potential bidder, but that there was limited scope to load Britvic with debt (to fund an acquisition) given current levels in the business.

Given that Britvic didn’t own many of its UK brands (and principally Pepsi, which sold with 7UP under license in Britain and Ireland), the source was not sure how attractive owned brands J20 and Fruit Shoot would be to Diageo, given the latter’s emerging market focus.

“Unilever are migrating to personal care (away from food), and emerging markets, so I don’t think Britvic would fit well with Unilever either. [There is] also the same issue about lack of brand ownership.”

Britvic’s vulnerabilities

UK M&A specialist Julian Wild, a corporate finance partner at law firm Rollits, was more skeptical regarding takeover talk.

“I don’t always apply much credence to gossip around acquisitions, as the market is always looking for an angle or reason to buy or sell shares, because this is how people make their money,” he told BeverageDaily.com.

“So any story that might suggest Britvic is vulnerable with gets latched onto. But Britvic are of the size (around 1.3bn turnover) where there will always be a degree of vulnerability.

Wild added: “So they took a pretty serious hit [on Magicap], but fundamentally I think Britvic is a good company. They are just unfortunate they’ve been hit by a pretty serious product recall.”

Britvic’s biggest vulnerability was its large exposure to the UK market, Wild said, while the business was also wholly dedicated to soft drinks.

“Those are two focus areas for them that you might say was a strength, but equally they can be seen as weaknesses. Britvic is not a broader food and beverage business, while bad UK economic performance or weather can be difficult to offset.”

Britvic was unavailable for comment this morning.

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