Potential Suitors for GlaxoSmithKline’s Lucozade

There would be no shortage of interest in Lucozade and Ribena although both may look tired and be seen as having less of an impression on the global stage than other megabrands such as Gatorade and Red Bull.

Pharmaceutical giant GlaxoSmithKline is carrying out a strategic review of its Lucozade and Ribena consumer health brands, and a sell-off cannot be ruled out. The company has not stated specifically if both brands could go to one buyer or be sold separately. Euromonitor International believes that it makes sense for the two established brands to go to different companies as what they offer is very different. The two brands’ combined sales are worth around US$1.5 billion globally. When considering valuation multiples, various potential suitors have the sufficient clout to strike a deal.

World Major Sports and Energy Drinks Brand Sales, RSP, 2007-2012

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Red Bull above is combined sales of TC Pharmaceutical and Red Bull GmbH

Source: Euromonitor International 

Why put Lucozade up for sale?

Lucozade, which is essentially present in both energy drinks and sports drinks, remains the leading soft drinks brand by retail value in the UK despite losing share in recent years. It also registers a share in seven other markets. In recent years, the brand has seen particularly strong growth in Nigeria, tripling its sales over the last five years, meaning it is still viable in some markets when marketed properly.

However, globally, Lucozade saw its ranking fall from third in 2007 to seventh in 2012 in the energy drinks category in face of strong competition from Red Bull, Monster and Rockstar. Despite the launch of Lucozade energy shots, which were then withdrawn due to a poor performance, and an attempt to enter the US officially, with the launch not really happening due to the recession, Lucozade appears tired and has found it hard to regain the strength to recover. At a corporate level, consumer beverages are far from a core business for the brand’s pharmaceutical parent. Therefore, selling off Lucozade at a time when it is still highly valued in several markets and using the proceeds to fund other growth areas sounds like a good idea. So, who potentially could be interested in Lucozade?

Cola giants

The Coca-Cola Co, which ranks third globally by value in sports and energy drinks, could be interested in acquiring Lucozade. History has taught Coca-Cola a sad lesson. While it hesitated, PepsiCo snapped up Gatorade. Ever since, Coca-Cola has remained under PepsiCo’s shadow in the category. Last year, there was a rumour that Coca-Cola might be interested in purchasing a stake in Monster, but the company refuted this. However, there are signs that the company desires a strong sports and energy drinks brand. Lucozade would lift Coca-Cola’s category share by two percentage points, taking it closer to Red Bull.

It is difficult to tell if PepsiCo would be interested in Lucozade. Although PepsiCo has no international energy drinks brand, building a global fruit/vegetable juice brand would seem more important to PepsiCo than acquiring Lucozade at this time.

Other investors

Japanese companies are expanding through acquisition, targeting both developed and emerging markets. They were rumoured to be interested in British assets last year. Otsuka acquired a few assets in Europe a few years ago, including the energy drinks brand Isostar, with the acquisition of Lucozade likely to further quench its thirst.

Suntory, which ranks ninth globally in sports and energy drinks, could also be interested in Lucozade. Along with V, Lucozade could become another international brand to aid Suntory’s globalisation ambitions. Suntory has established a new department specifically for acquisitions, with Lucozade perhaps being its next target.

With Warren Buffett’s potential acquisition of Heinz, investors’ appetite for attractive targets is seemingly recovering amid global economic uncertainty. While there is no shortage of suitors for Lucozade, interest in Ribena may be lower. Eckes, which is actively developing its Yo syrup drinks in Europe, could consider adding Ribena to its liquid concentrate portfolio.

Euromonitor International believes that whoever purchases the two brands will have to seriously consider growing them globally in order to make the cost of the purchase worthwhile.