Fresh deals on horizon as Coveney seeks the right recipe
The Greencore chief says he has moved on from the very public failed merger with Northern Foods . By Peter Flanagan
PATRICK Coveney is used to standing out in a crowd. At a lean six feet six, he towers above most people while his career has been on an almost vertical path since he graduated from UCC with first class honours.
A star schoolboy rugby player, the son of former Fine Gael minister Hugh and brother of current Agriculture Minister Simon, Coveney followed UCC with a PhD from Oxford before spending a decade at the management consultants McKinsey.
His last three years there were spent as managing partner for McKinsey in Ireland before he was offered the position of chief financial officer at Greencore. Within three years he was named chief executive, becoming one of the youngest bosses of a listed company here, just as the bottom began to fall out of the Irish economy.
Since then, Coveney has presided over a firm in one of the few sectors to have grown since the collapse of the Celtic Tiger. Since 2005 he has played an instrumental role in transforming the company from a sugar-based business to one of the biggest players in the convenience foods sector in Britain.
That transformation seemed to be completed last year when it was announced that Greencore would merge with the UK's convenience food giant Northern Foods in an all-paper deal. Although it was a merger, the market treated it as a de facto takeover by the Irish firm, with Coveney set to take over the new company -- to be called Essenta -- while the business would be headquartered here.
That deal fell apart however after the Bolton businessman Ranjit Boparan gazumped Greencore with a takeover offer for Northern which dwarfed Coveney's proposal. Eventually Greencore pulled out of the bidding, leading to heavy criticism for Coveney personally.
Looking back now, he admits he was taken by surprise by Boparan's move but is philosophical about losing Northern Foods.
"When we were agreeing the merger with Northern we looked hard at the likelihood of an interloper and we thought that was unlikely based on our assessment of the benefits of putting Greencore and Northern Foods together.
"It was possible someone would bid but to be honest as we looked at the list of potential bidders I would not have put Ranjit at the top of that list for two reasons.
"The Boparan businesses are not in the same industry as Northern so wouldn't create the potential for combinational synergies as we would have and the second thing was there were some specific challenges in NF that we were well equipped to address in terms of customer overlap issues and financing challenges around pensions in particular.
"I would absolutely maintain our deal had a stronger business logic than any other combination in this space and generated the potential for a greater level of cost synergies than any other deal.
"That was demonstrated by the rapid growth in both companies' share price immediately after we announced.
"The truth, though, is if you are in a public market you're for sale every day and when Boparan decided he wanted Northern, the timetable set out by The City's Takeover Panel gave him the space to do a quick due diligence and bid."
Even with Boparan's bid, Greencore almost came back with a better offer but ultimately could not overcome opposition from Northern's pension trustees. Greencore's revised offer would have seen the branded side of Northern's business -- including Goodfellas pizzas -- immediately sold off to a private equity company. The rejection of the format of the bid killed off any chance Coveney had of getting back to the table.
Coveney maintains that even at the offer made by Boparan (he bid for Northern at 73p a share, the Greencore merger ultimately had a notional value of around 50p a share), his offer was better for Northern's shareholders.
The Boparan bid bounced Greencore into planning a takeover of, rather than a merger with, Northern. Looking back now would Greencore have been better off trying a takeover from the start? Coveney doesn't think so.
"Look, you make tradeoffs in a merger but they are much more lucrative to shareholders. It's easy with hindsight but the merger was probably still the right thing to do and if we had launched a takeover bid we may still have had exactly the same problem as before."
The loss of Northern Foods was a blow but Coveney has adopted a "business is business" attitude to the deal. Greencore still uses Boparan as a supplier for poultry and Coveney insists he is "great" at his job.
Since missing out on Northern, Greencore is routinely mentioned in relation to any food company that may be in play -- it is something Coven- ey acknowledges and accepts.
"When you put your head above the parapet and bring the exposure to the business we did, people will always look for a second chapter.
"I fully understand that but I can't worry about it. I have to focus on the business performance and while doing that we'll look at things that are a good business and financial fit for the company.
"I don't accept that because we didn't close on Northern that we absolutely have to do a deal."
Nevertheless, the rumour mill is running overtime at the moment, and it is currently focused on the sandwich maker Uniq, which is very publicly up for sale. The market has accepted that Greencore is bidding for the company but Coveney refused to be drawn on the matter.
"We know that any company in our sector up for sale, either explicitly or implicitly, will be connected to us. Uniq is one of those, as are some others so you would expect us to be looking at all of that, but it's not helpful for our business to be on a treadmill of expectations.
"People who have seen what we have said about the business logic for Northern see there are other companies with the potential, subject to price, to deliver similar business benefits and will be looking at those."
None of those deals will be on the scale of Northern Foods, however, which in turnover terms was 50pc bigger than Greencore.
"That would have been a massive transaction. And there aren't a lot of food companies of that scale who compete directly with us so I think it's more likely development will be a little more piecemeal than would have been the case with that," Coveney says.
Of course, Greencore wouldn't be in the position it's in now if it hadn't got out of the sugar business in 2005. Greencore has been heavily criticised for this but as far as Coveney is concerned, the decision was made for them by the EU. It was not a choice for his company, he says.
"I've never sought to trivialise the impact of the sugar industry closing, whether it is the emotional impact, impact on the agri-economy and impact on our business losing the largest, most profitable, most cash generative, predictable stream of income we had. If I could wave a magic wand and have the business we had in 2004 and 2005 in perpetuity, I would love that.
"The EU reforms made it inevitable the sugar industry here was dead and nothing has changed. There are no serious commentators even with hindsight who think events could have unfolded differently."
Coveney says he has no ambitions to follow his brother into politics but he sounds awfully like a politician when he talks about the perception of Ireland abroad. The change of government has brought a sense of optimism back to business he says, something we need more of.
"I don't believe in this idea of 'talking the economy up will help us recover'. The commentary will become more optimistic when the economy improves.
"In the US or UK it's clear things have moved on there much more so than here.
"Walking around the large cities in the States, there is a momentum and energy that business is back up and running. That's not to say that what happened has been forgotten but there is a much better sense of context around the fact that recessions happen but they end and, when they do, you can start investing and growing again.
"Certainly there are big fiscal challenges in Britain but they are getting on with it and seem to have a national confidence that these problems are solvable.
"Without trivialising the issues, there has been a level of introspection here that I think is excessive and the focus does need to be more forward looking."
Despite the problems that have been laid bare here, Coveney is adamant that the Irish way of doing business is still very valuable to companies.
"There is no doubt Ireland is viewed less well than before. There will be a level of doubt about practices in Ireland which is going to perpetuate for a long time and it will only be in the substance of what we do that those things will get addressed. At the same time though, as a business nation we travel really well and our ability to connect into disparate cultures all over the world is fantastic and contrasts sharply with other European countries looking to expand outside EU."
Coveney has been chief executive of Greencore for three years now and is still only 40 years of age. It's clear he won't be in the job for the next 20 years but he is in no hurry to move on.