Monday 24 July 2017

Where now for Greencore?

WITH Ranjit Boparan having raised his stake in Northern Foods to 11.4pc, Greencore's chances of successfully merging with the UK food company have receded even further.

With Northern Foods seemingly off the agenda, what does the future hold for Greencore?

It was to have been the deal that would transform Greencore. By merging with Northern, another major supplier to the UK multiples, they would create an own-label giant. The merged company, which was to have been named Essenta, would have had combined sales of €2bn and operating (pre-interest) profits of €120m.

In addition, Greencore chief Patrick Coveney, who would have been the new Essenta boss, reckoned that there was scope for annual cost savings of €46m.

Then, literally at the last minute, the prize was snatched from his grasp when Mr Boparan -- whose 2 Sisters Food Group is one of the leading suppliers of poultry to the UK multiples -- gatecrashed the party.

Not alone was Mr Boparan's 73p per share offer in cash, unlike Greencore's all-share deal, it also represented a 50 per cent premium over what Greencore was prepared to pay. Not surprisingly the Northern board immediately withdrew their acceptance of the Greencore offer and recommended acceptance of Mr Boparan's bid instead.

So what does Greencore do now? To get back in the game it would have to top Mr Boparan's bid, which values Northern at £342m (€398m). Throw in Northern's debts of £218m and that pushes up the value of Northern to a towering £560m, not counting the £142m hole in its pension fund. All of this for a company whose 2009 operating (pre-interest) profits were flat at just £54m for the year to the end of March 2010.

At those sort of levels, Mr Coveney would need every cent of the mooted cost savings and then some.

So will Mr Coveney get into a bidding war with Mr Boparan for Northern? The Northern Foods share price of 74.5p suggests not. The Greencore share price, which has fallen by 15 per cent from its mid-January peak in anticipation of a bid from Mr Boparan, tells a similar story.

With his Northern merger now gone, it's back to the drawing board for Mr Coveney.

At the current €1.14 share price, Greencore has a market value of €234m. With last year's sale of its malting operations having reduced its borrowings to €193m, that gives Greencore a total enterprise value of €437m as against full-year operating profits of €59.3m.

That values Greencore at just over seven times operating profits. With the group also sitting on a land bank of more than 1,000 acres, will a private equity or trade buyer make Mr Coveney an offer he can't refuse?

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