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Mergers

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Introduction of Mergers

A combination of two or more companies in order to introduce a new venture in the market is termed a merger. Looking at the competitiveness of the present corporate market, it is important for the companies to enhance their business operations and thus, mergers with large-level companies or compatible firms help the course of functioning and lead to generating desired results. However, mergers assist companies to adjoin with other companies and avail them of a wide range of resources through the means by which a competitive edge can be maintained and enhanced.

Herein, the researcher focuses on the merger between AG Barr, the maker of the biggest selling brand (Irn-Bru) with Britvic (The biggest supplier of still soft drinks in the UK). By means of this research, the investigator will concentrate on enhancing the knowledge and understanding of readers and learners regarding the reasons due to why both companies merged as well as the advantages attained by Britvic Barr in the Soft Drink industry. Furthermore, future plans of Britvic Barr to sustain a competitive advantage.

The companies behind this merger have agreed to a £1.4 billion merger which leads to create one of the biggest soft drink firms in Europe. However, the merger of Britvic and its Scottish rival AG Barr formed the public entity named Barr Britvic Soft Drinks which will bring several portfolios of both companies under one roof such as: Robinsons Barley Water, J2O and Fruit shoot with Irn-Bru, Tizer and Rubicon as well as expected to generate annual sales of more than £1.5 billion.

Apart from several benefits, there are certain negative aspects that will be encouraged during the course of the merger such as: this merger will lead to cut the jobs of 350-500 employees as the company is striving to achieve annual savings of £35 million. But contradicting this there were several reasons behind the merger of these two soft drink giants (Barney and Clark, 2007). Firstly, both companies understand that there was a high degree of complementarity between the two businesses, sales channel presence and geographic presence within the UK. Secondly, managerial level people of both giants state that there was relatively very little connection between the portfolios of the companies which encouraged them to acquire additional resources and enhance their market share within the target market of Europe. Thirdly, the management of companies thinks that through the means of this merger, companies will benefit from each other's complementary sales and distribution networks which indeed enhance the reach towards the market. For instance, the international presence of Britvic will assist AG Barr to enter into the markets of France, The Republic of Ireland etc. Lastly, the Board of Directors predicted that there would be significant cost savings and revenue synergies. Furthermore, cost savings will assist the company in eliminating the duplication of corporate overheads and savings in procurement costs.

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Review of Literature

In accordance to Nandy and Baag (2009) merger is the concept and technique that help the business to grow. Merger is the process which is generally adopted by business entities often in order to perform the function at a multinational level. It is the concept which is adopted by enterprises due to various reasons such as extending the market share and offering a wide range of products to customers. In certain cases the business unit like to join its hand with the other business units to enhance their market position and improve the performance aspect which is associated with it.

With the viewpoint of Mathews, (2003) the merger is the process which is generally adopted by companies when they seek a downturn in their performance aspect and it can be foreseen that they are losing their market share in the represented work environment in order for the purpose to carry out the respective operations to meet the demand of the buyers. In order to carry out the merger the acquiring company and the acquired company come together and decide and execute the agreement between each other. After the merger is carried out the acquired company loses its existence and the acquiring company survives.

According to Akrani, (2012), the merger is the amalgamation of two companies to form a single business unit and serve the market over a larger basis. It is the prospect which is adopted by the companies to meet the demand of the customers and generate high revenues out of it. This is the procedure which is generally adopted to compete with the other companies and build up a strong position in the marketplace. In accordance to Nandy and Baag (2009) generally merger is done in those circumstances in which the company or the business unit is facing a huge downturn and is not able to regain its position back due to which the performance aspect is hindered to a greater extent.

According to Ravenscraft and Scherer, (2011), a merger helps the different business units to enhance their position with the help of the other business to sharpen their focus by joining hands with the other business unit. In the present scenario if the organization needs to sustain for a longer period of time they have to adopt proper measures by diversifying the product offering to meet the demand in the marketplace. In such cases, the business unit that operates over a smaller scale try to merge with the business units which have a deeper market penetration to perform the key operation and build a strong position by meeting the demand of the customers (FMGC, 2013).

There are different types of mergers which can be included by the business to grow and expand in the business environment are discussed below:

Horizontal merger: It is a merger which is carried out with those companies who are manufacturing similar products and services to customers in a similar market as a single entity (Pilsbury and Meaney, 2009). The companies adopt the horizontal merger in order to increase revenue by offering an additional range of products and services to the customers.

Vertical merger: It refers to the merger which is carried out between the manufacturer and a supplier who manufacture different products and services. The vertical merger occurs when companies try to reduce their production costs in order to increase efficiency to generate high profit against the offering which the business unit makes within the marketplace (Pilsbury and Meaney, 2009).

Market extension merger: This merger takes place between two companies which deal with the same product but in different market in order to meet the demand of the customer in an effective manner. It is generally adopted in order to access the greater marketplace to deal with a large number of customers (Ray, Barney and Muhanna, 2004).

Product extension merger: It is the merger which takes place between the organization which deals with products and services that are related to each other and operate in the same market. It is generally adopted in order to expand the customer base by making the offerings.

Conglomerate merger: This involves the combination of different corporations with the involvement of entirely different activities that are not related to each other.

Concentric merger: It is a merger which occurs within companies that do not offer a similar product but operate in the same industry. In this, the company serve the customers with the combination of two different types of products and services.

AG Barr and Britvic are a soft drink manufacturing company which is listed on the London Stock Exchange and operates on a large scale. In order to expand the business boundaries it adopted the horizontal merger with each other as they offer the same product to the customers. The main objective behind their merger was to generate revenue and ascertain that both the companies that are AG Barr and Britvic effectively generate an ample amount of profit in an effective manner. Both companies agreed to gain ample growth with the help of similar offerings of the products and services (Cameron, 2013).

According to Giessner and et.al. (2006), the companies restructured the entire function after the process of the merger in order to strengthen their position in a more effective manner. Both companies created a healthy offering to the customer to meet the requirements of the customers in an appropriate manner. It also ensured this that both AG Barr and Britvic provide the best range of the soft drink to the customers.

As per the viewpoint of Ravenscraft and Scherer (2011), the term merger can be coined as a restructuring of the business to meet the trends and demands of the customers. With the proper reorganization of the different activities, the entire functioning of AG Barr and Britvic are modified in accordance to ensure that they are growing over the different perspectives. The merger helped AG Barr and Britvic to develop a greater perspective and run for a longer period of time.

This merger helped AG Barr and Britvic to increase their revenue with the help of this they generated a huge amount of profit against the offering which they were making to the customers. In accordance with Nandy and Baag (2009), the merger helped AG Barr and Britvic to make investments to carry out the proper research in order to develop the entire working of the organization in an effective manner. It helped AG Barr and Britvic to employ efficiency to meet the requirements of the customers and diversify as per their specifications. This also enhanced the proper planning which was carried out by AG Barr and Britvic to cater for the greater market with a similar product that they were offering to the customers.

Theoretical perspectives to examine the business phenomena

In general resource base theory can be the strategy that holds the assets of the company as a primary input for overall strategic planning so that managers can concentrate on achieving a competitive advantage with the rare combination of the resources (Porter,2008). The main purpose of this theory is to transform a short-run competitive advantage into a sustained competitive advantage by means of resources that are heterogeneous in nature as well as not perfectly mobilized. However, the principle of resource-based theory assists in translating the valuable resources that are unable to be either imitated or substituted without a great deal of effort (Sirmon and Hitt,2003). In this regard, if Barr Britvic Soft Drinks is able to mobilize its resources effectively then these can prove to be a great help in attaining sustainability as well as above-average returns.

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In context to the applicability of the resource-based strategy, Barr Britvic Soft Drinks aims to achieve a competitive edge by making optimum utilisation of available resources (Cruijssen, 2006). In this regard, the resource-based view assists in offering some insights about strategic resources available to the cited firm as well as what helps the firm to generate the above average return or profit.

In addition to it, according to the VRIN characteristics, achieving a competitive advantage through a resource-based view leads to future sustainability (Smith and et.al, 2013). However, there are several characteristics of VRIN such as: valuable, rare, inimitable and non-substitutable.

Valuable: Barr Britvic Soft Drinks should possess resources which assist them in enabling a value-creating strategy by either outperforming its art rivals or minimizing or mitigating its weaknesses (Pepall, Richards and Norman, 2005). In this context, the costs associated with the overall investment are not higher than the discounted future rents that Barr Britvic Soft Drinks has to spend in order to attain value creative strategy.

Rare: In order to generate value, resources must possess rare definitions of their own. However, considering the perfectly competitive strategic factor market for a particular resource, the price of the available resource will clearly reflect the future profitability or above-average returns.

Inimitable: Looking at the present competitive environment, if valuable resources are managed and controlled by only one firm can lead to attaining a competitive edge within the target market. Furthermore, the main advantage of the approach is that if competitors are unable to duplicate the same it may help the Barr Britvic Soft Drinks to maintain its sustainability for long-term periods.

Non-Substitutable: Despite having rare resources or potentially value creating strategy as well as imperfectly imitable having a lack of sustainability may directly lead in resulting zero economic profits. Furthermore, in case if competitors are able to counter the value-creating strategy of the Barr Britvic Soft Drinks than also it may create several issues and obstacles for the company to generate above-average returns.

Therefore, on the basis of the above study it can be said that Barr Britvic Soft Drinks should take care of their available resources as well as make optimum utilisation of it so that valuable results and outcomes can be generated (Dobson, Starkey and Richards, 2009). Furthermore, protecting or procuring the resources which consist of above stated characteristics may help the firm in improving organisational performance. Contradicting to this it can be said that, each characteristic is important for the resources of Barr Britvic Soft Drinks because individually each of them is unable to sustain the competitive advantages. Furthermore, operating in such a competitive environment it is important for the Barr Britvic Soft Drinks to ensure that its offerings are highly effective in the market and people are satisfied with the taste and preferences offered to them. However, in order to do so it is important for the senior authority of Barr Britvic Soft Drinks to make sure that their offerings are attractive in nature and hygiene factors should be considered. Moreover, as per the integral aspects of resource-based theory, Barr Britvic Soft Drinks should develop the segment of its products so that, marketing and sales become easy and effective.

View theory on the merger case of AG Barr and Britvic

Considering the above study it has been analysed that, mergers are potential ways undertaken by the companies to enhance their market share, business volume and profitability. However, other than this, resources play a significant role in enhancing the performance of business enterprises (Harding and Rovit, 2013). According to the present case, the top-level management of AG Barr and Britvic planned to carry out a merger between the two giants to become the biggest and largest soft drink-selling company in Europe. In this context, on November 14 2012, the boards of both companies announced that they had agreed on the terms and stipulations regarding the merger. Furthermore, the merger resulted in Britvic with the higher per cent of shareholders holding around 63% while on the other hand, AG Barr shareholders held 37% of the issued share capital.

Looking at the increasing competition within the Soft drink industry it has become important for the firms operating in to enhance their business operations by means offering quality products and services so that they can maintain or even enhance the competitive edge within the target market (Haines, 2013). Herein, the researcher focuses on developing a hypothesis through the means by which it can be analysed whether the merger between two soft drink giants was successful in attaining a competitive edge within the target market. Following is the hypothesis:

Ha0: There is no significant impact of the merger between AG and Britvic on growth for Barr Britvic Soft Drinks

Ha1: There is a significant impact of the merger between AG and Britvic on growth for Barr Britvic Soft Drinks

On the basis of above above-defined hypothesis researcher focuses on evaluating and analysing whether the planning of the merger between AG Barr and Britvic helped the course of both companies in obtaining competition, enhancing business volume and generating higher profits (Harding and Rovit, 2013).

In this context, there were several expectations that the boards of both the firms had through the combination of both the companies which was named Barr Britvic Soft Drinks (Mathews, 2003). Firstly, the main purpose behind executing this merger was to become the largest soft drink company in Europe. Along with this, expected to generate annual sales of more than 1.5 billion and providing employment to more than 4300 people.

In addition to this, the boards of AG Barr and Britvic believe that the combined group will possess an attractive portfolio of strong and differentiated brands which consist of Irn-Bru, Robinsons, Fruit Shoot, J2O and Rubicon as well as the sub-segments of the soft drinks within the target market. However, managers of both firms concentrate on creating value by making optimum utilisation of available resources so that brand value and operational efficiency can be promoted (Mathews, 2003). The company's managerial level people think that the merger will provide a suitable opportunity in order to achieve a contribution of a minimum of 5 million from the annual net sales synergies by making the utilisation of combined distribution channels, brand portfolios and geographic presence will help the course of merged Barr Britvic Soft Drink Company to establish its business operations within the target market in an effective and efficient manner.

In context to the resource-based view theory, the top-level management of Barr Britvic Soft Drink Company can attain a competitive edge by focusing on making appropriate and suitable use of available resources (Ahern and Harford, 2014). Therefore, after the merger, it is important for the management of the company to focus on all those resources which help in generating above-average returns. Considering the present portfolios of the companies there are several which are valuable enough to generate desired results and outcomes. However, Irn-Bru and Robinsons are such products which does not require higher investment and with the help of combined distribution channels and the international presence of Britvic will assist the course of the merged firm to attain higher revenues.

There are several benefits that AG Barr and Britvic Soft Drink Company attained after getting merged as they were able to produce well-known brands such as Robinsons, Irn Bru and Tango (Britvic plc, 2012). Along with this, it also helped the boards of both companies to attain the license to produce Pepsi and 7UP from Pepsico. In such a competitive environment these benefits assisted the company in establishing its new portfolios in effective and efficient manner as well as in generating higher revenues to enhance the international reach of the products.

By means of this merger, top-level management aims to reduce the risk during the integration by making suitable and reliable strategies and tactics to make use of different resources in an effective manner (den Hertog, van der AA and de Jong, 2010). However, this merger will assist in minimizing the disruption of business activities and define the right platform for the AG Barr group to enhance its business operations in the international market and generate higher profitability. It will also provide opportunities to the employees of AG Barr group to utilise the British core systems such as capacity and quality to enhance their level of performance as well as generate desired results for the company. Boards of the companies assigned dedicated integration teams to manage and control the integration process to the best capabilities of both businesses.

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Conclusion

From this report, it can be interpreted that the business requires the proper procedure to help AG Barr and Britvic successfully run the entire operations and generate an ample amount of profit by serving the large customer base in an appropriate manner. With the help of the merger, the entire performance aspects which are associated with AG Barr and Britvic helped them to attain a competitive advantage with the increase in the market share. Further in this report it can also be concluded that both companies effectively held the various issues which were encountered during the merger and after it. The risks which were associated with AG Barr and Britvic were also reduced to a greater extent as the flows were met up after the horizontal merger of the companies. The planning aspect related to the merger between AG Barr and Britvic helped the course of both companies in obtaining competitive, enhancing business volume and generating higher profits. With the merger both the companies equally benefited and helped AG Barr and Britvic to expand their customer base by offering one additional unit of product and services to the customers.

References

  • Ahern, K.R. and Harford, J., 2014. The importance of industry links in merger waves. The Journal of Finance.
  • Barney, J.B. and Clark, D.N., 2007. Resource-based theory: Creating and sustaining competitive advantage. Oxford: Oxford University Press.
  • Giessner, S.R., and et.al., 2006. The challenge of merging: Merger patterns, premerger status, and merger support. Personality and Social Psychology Bulletin.
  • Haines, T., 2013. Constructing massive blue elliptical galaxies in the local universe.
  • Harding, D. and Rovit, S., 2013.Mastering the merger: Four critical decisions that make or break the deal. Harvard Business Press.
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