Greencore's shares soar as merger plans revealed
Convenience food firm will combine with UK rival to form company with estimated annual sales of £1.7bn
SHARES in Greencore soared yesterday after the company said it plans to merge with a British rival.
The convenience foods company is to combine with Yorkshire-based Northern Foods to create Essenta Foods in an all-stock deal.
The merger will be done on an equal basis with Northern Foods shareholders receiving 0.44 Greencore shares for every Northern Foods share. Greencore has a market capitalisation of €277m against Northern Foods €308m.
Northern Foods' chairman Anthony Hobson will become chairman of the new company, while Greencore chief executive Patrick Coveney and chief financial officer Simon Herrick will take on the same roles in Essenta.
The merger brings together two of the biggest players in the convenience foods sector, giving the new company an estimated £1.7bn (€2bn) in sales annually and £110m in earnings before interest, tax, depreciation and amortisation.
Northern Foods is one of the main suppliers to Marks & Spencer and counts Fox's biscuits and Goodfella's pizzas among its brands.
The new firm, although domiciled in Ireland, will be listed on the London stock exchange. A secondary listing in Dublin is planned.
Any deal will require 75pc approval from shareholders. Greencore said they had received letters of intent supporting the deal from 30.29pc of their shareholders, while Northern have similar letters covering 11.81pc of its investors.
Mr Coveney said the deal had been mooted for sometime but it was not until this summer that serious talks began.
"Northern Foods are a logical fit for us and we had long discussed it internally. This summer, however, we began to look seriously at doing it, and this announcement concludes some 12 weeks of discussions."
In a statement, Greencore said the agreement would bring about €40m in synergies within two years of the merger being completed, but Mr Coveney denied there would be heavy job losses as a result of the merger.
"We will be combining functions and there will be a small number of redundancies, but the bulk of the synergies -- £20m worth -- will be attained through the purchasing power created by combining the two firms and better banking facilities," he said.
"As part of the deal, we will have an investment grade rating which will allow cheaper and longer debt facilities as well."
The announcement came as Greencore said it had made a gross operating profit for the year to September 24 of €59.7m on the back of sales from continuing operations of €856m.
Those figures translated to adjusted earnings per share (EPS) of 16.7c, down slightly on 2009 when EPS stood at 17.4c.
News of the deal was unanimously welcomed by analysts.
"On paper this looks like the right deal for both companies," said John O'Reilly of Davy Stockbrokers.
"It is necessary given the scale and financial issues that face the UK food sector and both parties are bringing good category scale in the convenience foods sector to the table, while the new banking facility will provide Essenta with greater financial flexibility."
Those sentiments were echoed by NCB's Paul Meade, who pointed to the synergies the new company should achieve.
"The potential of Essenta to retain the forecast synergies should be to the upside given that the merger combines two of the strongest rivals in the sector without significant customer overlap," he said.
By late afternoon, Greencore was trading up more than 28pc at €1.33.