Decision comes after Office of Fair Trading refers the deal to the Competition Commission
AG Barr and Britvic have called off their merger plans after the Office of Fair Trading referred merger to the Competition Commission.
The OFT said it was referring the merger to the Competition Commission amid concerns the deal could reduce “competition between certain brands of these two soft drinks suppliers”.
As a result, the OFT said it could “not rule out higher prices post merger”.
Barr and Britvic are two of the three main players in the UK soft drinks market, along with Coca-Cola Enterprises.
The OFT had postponed making a decision on the merger in January, two weeks before the deal was scheduled to conclude, saying it wanted more time to consider the deal and set a deadline for that decision for today.
A statement released by the OFT today states: “Barr and Britvic supply a range of carbonated and non-carbonated soft drink brands: Barr’s brands include Orangina, KA and Rubicon as well as IRN BRU, which has a particularly strong presence in Scotland.
“Britvic’s brands include Robinsons, Fruit Shoot,Tango and Pepsi.
“The OFT's investigation found that the acquisition raised competition concerns with respect to the loss of the competitive constraint from some of Britvic’s brands on Barr's IRN BRU and Orangina brands.
“Consumer survey evidence submitted by the merging parties showed that Coca-Cola and other brands supplied by Coca-Cola Enterprises were important alternative choices for many drinkers of Barr's IRN BRU and Orangina brands.
“However, it also showed that some of Britvic’s brands – in particular Pepsi and Tango - were also sufficiently close alternatives to raise competition concerns.
“As a result, the OFT could not rule out the possibility of higher prices post-merger.”
Amelia Fletcher, OFT chief economist and decision maker in this case, said: “The soft drinks industry is an important one for many consumers in Great Britain.
“People spend over £9 billion each year on these drinks.
“This merger will see the UK market reduce from three to two main players.
“Our investigation has identified competition concerns relating to this deal with respect to Barr’s IRN BRU and Orangina brands which could lead to higher prices for consumers.
“In addition, we could not rule out the possibility of further competition concerns arising from combining the overall Britvic portfolio of soft drinks with the entire Barr portfolio.
“We are therefore referring the merger to the Competition Commission for an in-depth investigation.”
In a joint statement to the markrt on Wednesday evening, AG Barr and Britvic said: “The boards of AG Barr and Britvic note the announcement by the Office of Fair Trading (the "OFT") today of its decision to refer the merger of AG Barr and Britvic (the "Merger") to the Competition Commission.
“Publication of the full text of the OFT's decision is awaited.
“AG Barr and Britvic will continue to work together and will make a further joint announcement following their combined review of the OFT's full decision.
“As a result of the OFT's decision, condition 3(c) to the merger (as set out in part A of part IV of the scheme document dated 5 December 2012) relating to UK merger control has not been satisfied and is now invoked by AG Barr.
“In accordance with its terms, the merger has now lapsed and Britvic confirms that the scheme will not proceed.
“Under Rule 12.2 of the Takeover Code, the offer period in relation to Britvic has now ended and a competition reference period has now commenced.
“Capitalised terms used but not defined in this announcement have the same meanings as set out in the scheme document dated 5 December 2012.”
A joint market statement, issued by AG Barr and Britvic on Thursday, states: “AG 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 Boards of AG Barr and Britvic therefore intend to work together with the Competition Commission during its investigation with a view to seeking clearance of the proposed merger.
“The Competition Commission's investigation is expected to take approximately six months.
“If clearance is received from the Competition Commission on terms satisfactory to both A.G. Barr and Britvic, the Boards of AG Barr and Britvic will each reconsider, at that time, the terms of a possible merger between AG Barr and Britvic.
“There can be no certainty or assurance that, following such clearance, any such merger would be forthcoming or that any offer will be made by either A.G. Barr or Britvic.
“AG Barr and Britvic consider there to be compelling rationale for clearance.
“The view of the two Boards on the benefits of the transaction is unchanged and they continue to believe that it is in the interests of the two shareholder groups.
“AG Barr and Britvic will continue to work closely with the authorities to expedite clearance.”