Irn Bru maker AG Barr is remaining tight-lipped about press reports that it is preparing a £1bn bid for Glaxo Smith Kline’s iconic drink brands Ribena and Lucozade, in the wake of its failed merger bid with Britvic.
He based the valuation on the combined sales of Lucozade and Ribena being £600M and an industry average earnings before interest, tax, depreciation and amortisation (EBITDA) margin of about 16% or £96M.
The most likely form of deal would be a joint venture with private equity (PE), said McNeela. “In this scenario AG Barr could take out a call option to buy PE out at some point in the future.
“Secondly, private equity could take a stake in Barr injecting the required equity into Barr for them to bid with.”
Cost savings
Cost savings would be a driving force behind the deal. “We think cost savings could be quite significant given the scope to close plants and bring production into its new Milton Keynes site,” said McNeela.
AG Barr sales are currently trading 19 x price/earnings ratio and 11.9 x earnings value/EBITDA, which represents a premium to its international soft drinks peers.
But the structure of the deal would be crucial in determining the merits for equity investors, said McNeela.
Panmure Gordon retained its ‘hold’ recommendation on AG Barr stock.
Meanwhile, Chinese police have accused Glaxo Smith Kline of behaving like a criminal “godfather” in China, paying about £323M (3bn yuan) in bribes since 2007, according to a report in The Telegraph.
A spokeswoman for the firm told FoodManufacture.co.uk that an internal investigation had revealed no evidence to support the allegations.
Glaxo Smith Kline took the allegations very seriously and was co-operating with the authorities, she added.
