Introduction of Mergers
Combination of two of more companies in order to introduce a new venture in the market is termed as merger. Looking at the competitiveness of present corporate market, it is important for the companies to enhance their business operations and thus, mergers with large level company or compatible firm helped the course of functioning and lead to generate desired results. However, mergers assist companies to adjoin with other companies and avail them with wide range of resources through the means of which competitive edge can be maintained and enhanced.
Herein, researcher focuses on merger between AG Barr, the maker of biggest selling brand (Irn-Bru) merged with Britvic (The biggest supplier of still soft drink in UK). By the means of this research, investigator will concentrate on enhancing the knowledge and understanding of readers and learners regarding the reasons due to which both companies merged as well as the advantages attained by the Britvic Barr in Soft Drink industry. Furthermore, future plans of Britvic Barr to sustain 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, merger of Britvic and its Scottish rival AG Barr formed the public entity named as Barr Britvic Soft Drinks which will bring several portfolios of both the 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 merger such as: this merger will lead to cut the jobs of 350-500 employees as company is striving to achieve annual savings of £35 million. But contradicting to 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 two businesses, sales channel presence and geographic presence within UK. Secondly, managerial level people of the both giants states 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, management of companies thinks that through the means of this merger companies will benefited from each other’s complementary sales and distribution networks which indeed enhance the reach towards market. For instance, international presence of Britvic will assist AG Barr to enter into the markets of France, The Republic of Ireland etc. Lastly, Board of Directors predicted that there would be significant cost savings and revenue synergies. Furthermore, cost savings will assist company in eliminating the duplication of corporate overheads and savings in procurement costs.
Review of Literature
In accordance to the 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 the business entities often in order to perform the function at multinational level. It is the concept which is adopted by the enterprises due to various reasons such as extend the market share and offer the wide range of product to the 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 the Mathews, (2003) the merger is the process which is generally adopted by the companies when they seek a downturn in their performance aspect and it can be foreseen that they are losing their market share in the represent work environment in order for the purpose top 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 losses its existence and the acquiring company survive.
According to Akrani, (2012) merger is the amalgamation of the two companies to form a single business unit and serve the market over 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 strong position in the marketplace. In accordance to the Nandy and Baag (2009) generally merger is done in those circumstances in when the company or the business unit is facing huge down turn and is not able to regain its position back due to which the performance aspect is hindered at a greater extent.
According to Ravenscraft and Scherer, (2011) merger helps the different business unit 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 measure by diversifying in the product offering to meet the demand in the market place. In such cases the business unit who operates over a smaller scale try to merge with the business units which have the deeper market penetration to perform the key operation and build 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 the merger which is carried out with those companies who are manufacturing the similar product and services to the customers in the similar market as a single entity (Pilsbury and Meaney, 2009). The companies adopt the horizontal merger in order to increase the revenue by offering the additional range of the product 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 product and services. The vertical merger occur when the companies try to reduce its production cost in order to increase the efficiency to generate high profit against the offering which the business unit make within the market place (Pilsbury and Meaney, 2009).
Market extension merger: This merger take place between two companies which deals with the same product but in the 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 market place to deal with large number of customers (Ray, Barney and Muhanna, 2004).
Product extension merger: It is the merger which takes place between the organization which deal with those product and services that are related to each other and operates in 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 the entirely different activities that are not related to each other.
Concentric merger: It is the merger which occurs within the companies who does not offer similar product but operates in the same industry. In this the company serve the customers with the combination of two different types of product and services.
AG Barr and Britvic are the soft drink manufacturing company which is listed in the London stock exchange and operates over the 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 effective generate the ample amount of profit in an effective manner. Both the companies agreed to gain the ample growth with the help of the similar offering of the product and services (Cameron, 2013).
According to Giessner and et.al. (2006) the companies restructured the entire function after the process of merger in order to strengthen it position in more effective manner. Both the companies created the healthy offering to the customer to meet the requirement 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 the Ravenscraft and Scherer (2011) the term merger can be coined as a restructuring of the business to meet the trends and the demand 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. Merger helped AG Barr and Britvic to develop at the greater perspective and run for a longer period of time.
This merger helped AG Barr and Britvic to increase the 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 to the Nandy and Baag (2009) the merger helped AG Barr and Britvic to make investment 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 the efficiency to meet the requirement of the customers and diversify as per their specification. This also enhanced the proper planning which was carried out by the AG Barr and Britvic to cater the greater market with the similar product that they were offering to the customers.
Theoretical perspectives to examine the business phenomena
In general resource base theory can be as the strategy that holds the assets of the company as a primary input for overall strategic planning so that manager can be concentrate on achieving the 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 the means of resources that are heterogeneous in nature as well as not perfectly mobilized. However, the principle of resource base theory assist in translating the valuable resources that are unable to either imitated or substituted without the great deal of efforts (Sirmon and Hitt,2003). In this regard, if Barr Britvic Soft Drinks is able to mobilize their resources effectively then these can prove to be great help in attaining sustainability as well as above average returns.
In context to the applicability of the resource based strategy, Barr Britvic Soft Drinks aims at achieving competitive edge by making optimum utilisation of available resources (Cruijssen, 2006). In this regard, resource based view assist in offering some insights about strategic resources available to the cited firm as well as what helps firm to generate the above average return or profit.
In addition to it, according to the VRIN characteristics, achieving competitive advantage through resource based vie 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 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 is not higher than the discounted future rents that Barr Britvic Soft Drinks has to spend in order to attain value creating strategy.
Rare: In order to generate value, resources must possess rare definition of their own. However, considering the perfectly competitive strategic factor market for a particular resource, price of the available resource will clearly reflects the future profitability or above average returns.
Inimitable: Looking at the present competitive environment, if valuable resources is managed and controlled by only one firm can lead to attain competitive edge within the target market. Furthermore, the main advantage of 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 of having rare resources or potentially value creating strategy as well as imperfectly imitable but having 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 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 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 are 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 factor 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 way undertaken by the companies to enhance their market share, business volume and profitability. However, other than this, resources play significant role in enhancing the performance of business enterprise (Harding and Rovit, 2013). According to the present given case, top level management of AG Barr and Britvic planned to carry out merger between two giants to become the biggest and largest soft drink selling company within the Europe. In this context, on November 14 2012, the boards of both the companies announced that they have agreed on the terms and stipulations regarding merger. Furthermore, the merger resulted in Britvic with the higher percent of shareholders holding around 63% while on the other hand, AG Barr shareholders holding 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 the means offering quality of products and services so that they can maintain or even enhance the competitive edge within the target market (Haines, 2013). Herein, researcher focuses on developing a hypothesis through the means of which it can be analysed that whether the merger between two soft drink giants was successful in attaining 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 significant impact of the merger between AG and Britvic on growth for Barr Britvic Soft Drinks
On the basis of above defined hypothesis researcher focuses on evaluating and analysing whether the planning of merger between AG Barr and Britvic helped the course of both companies in obtaining the competitive, enhancing business volume and generating higher profits (Harding and Rovit, 2013).
In this context, there were several expectation that, boards of both the firms were having through the combination of both the companies which was named as 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 the both firms concentrating on creating value by making optimum utilisation of available resources so that brand value and operational efficiency can be promoted (Mathews, 2003). Company’s managerial level people thinks that merger will provide suitable opportunity in order to achieve contribution of minimum 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 effective and efficient manner.
In context to the resource based view theory, top level management of Barr Britvic Soft Drink Company can attain 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 helps 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, Robinsons are such products which does not require higher investment and with the help of combined distribution channels and the international present of Britvic will assist the course of 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 as Robinsons, Irn Bru and Tango (Britvic plc, 2012). Along with this, it also helped the boards of both the companies to attain the license of producing Pepsi and 7UP from Pepsico. In such a competitive environment these benefits assisted company to establish its new portfolios in effective and efficient manner as well as in generating higher revenues to through enhance international reach of the products.
By the means of this merger, top level management aims at reducing the risk during the integration by making suitable and reliable strategies and tactics to make the use of different resources in 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 right platform to the AG Barr group to enhance its business operations to international market and generate higher profitability. It will also provide opportunities to the employees of AG Barr group to utilise the Britvic 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 team to manage and control the integration process to the best capabilities of both the business.
From this report it can be interpreted that the business require the proper procedure to help the AG Barr and Britvic to successfully run the entire operations and generate the ample amount of profit by serving the large customer base in an appropriate manner. With the help of merger the entire performance aspects which are associated with AG Barr and Britvic helped them to attain the competitive advantage with the increase in the market share. Further in this report it can also be concluded that both the companies effectively held the various issues which were encountered during the merger and after it. The risk which were associated with AG Barr and Britvic were also reduced to a greater extend as the flows were meet up after the horizontal merger of the companies. The planning aspect related to merger between AG Barr and Britvic helped the course of both companies in obtaining the competitive, enhancing business volume and generating higher profits. With the merger both the companies were 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.
- 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.