The City: Britvic gets ready for market

Published: 18 January, 2007

Takeovers and flotations have been a feature of the London stock market this year. The economics are simple. Interests rates are comparatively low and seem set to remain so, but company profitability has been rising. Cash-rich groups are therefore attracted to the cheapness of buying profitable assets and cash flow rather than investing in organic development. And while institutions flush with cash are seeking an income-generating home, the conditions are right for deals and restructuring.

That is one reason why Britvic is coming to the market next month. The company has yet to put a price tag on itself (its City advisers are testing the waters), but commentators are putting a value of about 800m on it, which would include 300m of debt. That would make the flotation the fourth largest in London this year.

Not only is the timing right for the owners to get a good price for the business, it is also in line with their business plans. Britvic was founded in the 19th century as the British Vitamin Products Company, run from a chemist's shop in Chelmsford. It came to prominence after World War II with its fruit juice-brands and was bought in 1986 by a consortium of Bass, Whitbread and Allied Breweries to provide their extensive pub chains with soft drinks and mixers. PepsiCo joined the consortium later.

Those companies no longer have pub chains. Bass became Intercontinental Hotels (which holds a 47.5% stake in Britvic) and spun off its Mitchells & Butlers pubs chain as a free-standing group. Whitbread (which has 23.75%) sold off its pubs in the late 1990s, as did Allied Domecq, itself recently swallowed by Pernod Ricard (23.75%), which has recently sold its own soft-drinks interests. So Britvic no longer fits the shareholders' business models - except, of course, PepsiCo (owning 5%), which sees Britvic as a natural weapon in its battle with Coca-Cola, owner of Schweppes, Britain's other leading supplier of soft drinks and mixers.

Yet Britvic is a solid business. Apart from the eponymous brand, its stable includes Robinson's, J2O, 7Up, Tango and R Whites, plus distribution rights for Pepsi. Its turnover is about 700m a year, and the company has plans to expand.

Next year it will distribute PepsiCo's sports drink Gatorade in the UK, and it has the rights to distribute any new carbonated drinks from the Pepsi stable. In addition, Britvic will launch two new brands in the growing bottled-waters market next year. The managers are also discussing the possibility of expanding Britvic's international business through the PepsiCo chain.

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