WITH Nestle having decided against joining its bid for Northern Foods, what does the future now hold for food company Greencore?
As the former Irish Sugar company tries desperately to revive the Northern deal, Greencore boss Patrick Coveney must avoid the temptation to overpay for the UK own-label food producer.
Ever since poultry magnate Rajit Boparan gate-crashed Greencore's proposed all-share merger with Northern Foods with an all-cash offer of Stg73p per share on January 21, the odds have been stacked against the Irish company. Even matching Boparan's offer would cost Greencore an extra £130m, wiping out most of the £40m annual savings it hopes to achieve through merging with Northern Foods.
Since Boparan entered the bidding, Greencore has tried to rescue its Northern deal by recruiting a partner. A number of possible candidates are understood to have been approached, including Swiss food giant Nestle, which walked away from the table this week.
Greencore's search for a partner as it seeks to increase its offer for Northern Foods has been complicated by the fact that, with a pension fund deficit of £142m, the Northern pension trustees are opposed to a break-up of the company.
Boparan secured the backing of the trustees for his bid by promising to inject £15m per year into the Northern pension fund.
Now Greencore is reputedly seeking to team up with private-equity buyers, with US hedge fund Och-Ziff being mentioned as a possible partner.
But what happens if Greencore is forced to admit defeat in its battle for Northern Foods?
While such an outcome might represent a disappointment for Coveney, Greencore shareholders might be quietly relieved that Greencore hadn't overpaid for its target.
After all it's not as if Greencore doesn't have a history of overpaying for acquisitions, as those shareholders who suffered the consequences of its hugely expensive £350m purchase of Hazlewood Foods in 2000 could testify.
If Boparan succeeds in besting Greencore, some brokers' analysts have speculated that the company could purchase Premier Foods' Brookes Avana division instead.
Brookes, which supplies 95 per cent of its output to Marks & Spencer, has annual sales of about £200m and has been tentatively valued at about £120-£140m.
Unfortunately Brookes Avana is not without its problems, with Premier having been forced to write off £125m of Brookes' goodwill in its most recent results. Further complicating matters is the fact that Brookes Avana doesn't seem to be for sale.
"With the position that we have got now we have no need to sell anything at all. We have addressed our financial position", Premier chief executive Robert Schofield told the Reuters news agency this week.
Just for good measure Schofield told Reuters that Premier had "received no calls" about Brookes.
With the Northern Foods merger on life support and a Brookes Avana acquisition unlikely what does Coveney do next?
With its share price of just €1.19 down by over four-fifths since mid-2007 maybe he should put the company up for sale. The Boparan bid values Northern at £342m, almost seven times last year's operating (pre-interest) profits of £54m.
A bid for Greencore pitched at a similar level would value the Irish company at €400m or €1.80 per share. That represents a 60 per cent premium on the current share price. After all of the disappointments of recent years that might represent the least worst outcome for Greencore shareholders.
Sunday Indo Business