Compelling deal for Carlsberg but lacking in fizz for Britvic investors

What was it that Ian Durant, chairman of Britvic, the Fruit Shoot, J20 and R White’s lemonade firm, was saying about Carlsberg’s last bid at £3.1bn , or £12.50 a share? Here it is: the offer “significantly undervalues Britvic, and its current and future prospects”. What he really meant, it turns out, is that the Danes were offering close to fair value and Britvic’s board would roll over for a bump of a mere 5% in price.

So it was that Carlsberg’s improvement to £13.15, or £3.3bn , was accompanied by a fine display of verbal gymnastics from the Britvic boardroom on Monday. The new bid offers “compelling” strategic logic plus the certainty of cash for shareholders, said Durant. The modestly superior new terms reflect the “the current strength and medium-term prospects”.

This column would have preferred Britvic to have held out for some fizz – £14 a share, say – because the company is doing OK under its own steam. Having weathered a stay-at-home pandemic and a bout of inflation in packaging costs, recent trading has been strong and share buy-backs have been arriving regularly and confidently. Surrendering for a 36% takeover premium is nothing special in today’s undervalued (or so the fund managers keep telling us) UK stock market.

Britvic’s directors would have a plea in mitigation, it should be said, and it has some weight. It is the fact that the power beyond their throne is PepsiCo. Half Britivic’s revenues come from bottling its drinks under licence – think Lipton ice tea, Tango and Pepsi itself – so what the US group wants is not irrelevant in a takeover situation. Unfortunately, PepsiCo’s thinking is that fewer and bigger global bottlers are better. As Monday’s document put it, it wants to “drive consolidation of its bottling partners across contiguous markets”.

Since Carlsberg already bottles for PepsiCo in Norway, Sweden and Switzerland, it fits the bill as a pan-European bottler in the making. Indeed, Carlsberg secured PepsiCo’s blessing to move for Britvic at the outset of this saga and not simply mid-scrap as previously thought; change of control clauses will be waived.

That feels tough on Britvic, whose UK relationship with PepsiCo goes back to 1987 and was extended in 2020 to 2040. Its reward for success is to be treated as a pawn in the eternal global battle between Coca-Cola (for whom Carlsberg bottles in Denmark and Finland) and PepsiCo. That’s life, sadly.

From Carlsberg’s point of view, the deal does indeed make compelling sense. It is separately buying the pub chain Marston’s 40% stake in Carlsberg Marston’s, currently a UK joint venture, to get full control of the operation for £206m. So it will emerge with chunkier UK business, covering beer and soft drinks, from which it expects to squeeze £100m of annual savings eventually from combined distribution costs and so on.

Even though Carlsberg will still be a distant fourth in UK brewing, its chief executive, Jacob Aarup-Andersen, can speak credibly about building a “UK powerhouse”: the UK is now the Danes’ biggest market, overtaking China, and the makeup of revenues is a model of his “beyond beer” strategy.

Carlsberg looks the winner in this transaction. Britvic shareholders get only a so-so premium, reflecting a weak negotiating hand. It is not a moment to crack open the Fruit Shoots.