The Office of Fair Trading (OFT) said it could not rule out the possibility of higher prices following a tie-up after surveys suggested Britvic's brands Pepsi and Tango were sufficiently close alternatives to Irn-Bru to raise competition concerns.%VIRTUAL-SkimlinksPromo%
A £1.4 billion deal to merge Robinsons squash maker Britvic and Irn-Bru owner AG Barr has been referred to the Competition Commission.
OFT chief economist Amelia Fletcher said: "The soft drinks industry is an important one for many consumers in Great Britain. People spend over £9 billion each year on these drinks.
"This merger will see the UK market reduce from three to two main players. Our investigation has identified competition concerns relating to this deal with respect to Barr's Irn Bru and Orangina brands which could lead to higher prices for consumers."
The OFT ruling means the merger deal between AG Barr and Britvic has lapsed.
Britvic said it would decide whether it was going to engage with the Competition Commission over the merger once it had read the OFT's full decision. But if a merger is to go ahead the companies would have to go back to the drawing board to renegotiate terms.
Britvic said Simon Litherland, who joined the company from Diageo and has recently been running Britvic's UK operation, would take the role of chief executive with immediate effect.
AG Barr boss Roger White was set to become the chief executive of a merged company, with Britvic's outgoing chief executive Paul Moody set to retire.
Gerald Corbett, chairman of Britvic, said: "Here are two companies trying to get together to take on Coca-Cola and it is being booted into the long grass."
In a statement the OFT said that the evidence from the merging parties had showed that rival Coca-Cola and its other brands were "important alternative choices" for many drinkers of Barr's Irn Bru and Orangina brands, but that some of Britvic's brands were also sufficiently close alternatives.