FOCUS: Britvic Likely To Expand Further In Europe

17th Jun 2010 16:24

By Michael Carolan Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Britvic's (BVIC.LN) foray into Continental Europe with the acquisition of a French rival is unlikely to be its last. A deal to buy a bottler of PepsiCo Inc (PEP) brands in Northern Europe is likely to be next on the soft drinks group's shopping list. Britvic surprised the market last month when it entered the French soft drinks market with the EUR237 million purchase of Fruite Enterprises SA. Observers had expected the purchase of a Pepsi bottler to complement Britvic's Pepsi operations in the U.K. Rather than ruling out such a deal however, the Fruite purchase provides a strong platform on which to add a Pepsi bottler, with the French Pepsi operations being the obvious candidate. "We believe that the Fruite acquisition (mainly in France) does not preclude further bolt-on moves into PepsiCo franchises across Europe," said Nomura analyst Ian Shackleton. RBS analyst Jonathan Cook said the deal provides "a significant opportunity to add value through the introduction of Britvic's brand portfolio and its category management skills" to the French market. More important though is the opportunities it offers Britvic for further expansion. "Fruite provides a foothold in continental Europe from which Britvic can look to expand over time," said Cook. In addition to producing its own brands such as Robinson's and Tango, Britvic produces, markets and distributes Pepsi and 7UP in the U.K. under an exclusive deal with PepsiCo until 2023. Britvic Chief Executive Paul Moody was keen to stress that buying more Pepsi bottlers is still a priority. "The acquisition doesn't exclude any future development with Pepsi," he said at the time of the Fruite deal. PepsiCo consolidated its North American distribution with the $7.8 billion acquisitions of its two largest bottlers earlier this year as it looked to make its distribution more efficient. While it could theoretically do the same in Europe, there may be no need if Britvic does the consolidating on Pepsi's behalf. Nomura's Shackleton said Britvic could pick up new franchises in European markets "where the current bottler does not appear committed to PepsiCo." One industry insider, with knowledge of both companies' thinking, said Pepsi would support Britvic's attempts to buy other bottlers in mainland Europe but added that a deal is not imminent. "They need to digest and integrate the business," he said. "I can't see them doing another deal in the short term." Evolution analyst Andrew Holland thinks Britvic could afford another acquisition and could raise a further GBP100 million of debt or launch a rights issue to fund an acquisition. Indeed, Britvic CEO Moody said last month that the Fruite deal left the company well within its debt covenants and it expects to pay down its debt "pretty quickly." Pepsi brands are bottled and distributed in Europe by a combination of independent firms, Pepsi-owned subsidiaries and brewers such as Carlsberg AS (CARL-A.KO) and Heineken NV (HEIA.AE). Carlsberg and Heineken are both seen as potential sellers, given their desire to focus on their core brewing operations, but a deal could be complicated. Carlsberg and Heineken already have a distribution network in place for their beer brands, and soft drinks are carried on the same trucks. If Britvic were to buy Sweden's Pepsi operations from Carlsberg, for example, it would have to find a distributor and could even end up paying Carlsberg to continue carrying Pepsi brands on its trucks. This added cost could make a deal difficult to justify. Added to this, Carlsberg doesn't run its Pepsi business as a separate entity so would have to separate it internally before Britvic could bid for it. This suggests a deal with either Carlsberg or Heineken is unlikely in the short term, and it would be easier for Britvic to buy a stand-alone bottler. "The PepsiCo-owned French Pepsi bottler would be a good place to start," said Evolution's Andrew Holland. Pepsi is bottled and distributed by a PepsiCo subsidiary in France but Britvic CEO Paul Moody said last month this could change. Evolution's Holland said that Pepsi has a "pitifully small" share of the French soft drink market, so "PepsiCo may well conclude that Britvic could do a better job in France." The Pepsi brand accounts for just 1% of carbonated drinks sold in French shops and 4% of those sold in French bars and restaurants, he said. By contrast, in the U.K. Britvic has driven Pepsi to an 11.7% share of fizzy drinks sales in stores and a 28% share of pub and restaurant sales. Pepsi is unlikely to squeeze Britvic for a high price in the event of a deal and could even help finance a deal. As both a partner and an investor, Pepsi has a strong interest in Britvic's success. -By Michael Carolan, Dow Jones Newswires; 44-20-7842-9278; [email protected] (END) Dow Jones Newswires June 17, 2010 11:24 ET (15:24 GMT)