Greencore and Northern Foods plan to merge
Greencore Group and Northern Foods Plc have agreed to merge in a transaction creating a company with annual sales of about €2bn.
The combination of the food makers, which both supply UK retailers including Tesco and Marks & Spencer, will lead to annual cost savings of €47bn within three years, the companies said in a statement released today.
Greencore shares jumped 20pc in Dublin trading while Northern Foods surged as much as 26pc in London.
The combined group will have strong market positions in sandwiches and ready meals, which grew 9.8pc and 7.7pc, respectively, in the UK last year, the companies said.
“The deal makes eminent sense,” Clive Black, an analyst at Shore Capital in London, said in a research report.
“It does reflect to some degree the challenges of the trade, not least the possible over-demands of the multiple retailers over many years in the prepared foods space.”
Shareholders in Leeds-based Northern Foods and Dublin-based Greencore will each own 50pc of the new company, to be called Essenta Foods.
Northern Foods shareholders will get 0.4479 of a new Greencore share for each share owned.
Patrick Coveney, Greencore’s chief executive officer, will become the CEO of Essenta Foods, the companies said.
The merger is due to complete in the second quarter of 2011 and the new company will be domiciled in Ireland, the companies said.
Greencore will delist from the Irish Stock Exchange, though Essenta expects to have a secondary listing in Dublin.
At least half of the estimated cost savings from the deal will be generated in the first year, the food makers said.
The merger will help create a “stronger credit profile which will help ensure greater financial and strategic flexibility in future,” according to the statement.
The gain in Northern Foods’ shares was the steepest since at least 1988 and boosted the company’s market value to £264m as of 8:43am in London.
Greencore shares rose the most since October 16, 2007 and the company had a market value of €256m at the same time in Dublin.
Following completion of the merger, Essenta Foods “will maintain a progressive dividend policy and target a dividend cover ratio of 2.0 to 2.5 times calculated on an adjusted earnings per share basis,” the companies said.