Monday 18 December 2017

Greencore stresses savings from Northern merger would hit £40m

Peter Flanagan

GREENCORE yesterday reiterated that a merger with Northern Foods would yield savings of "at least" £40m (€46m) annually, as speculation mounted that the Irish company may launch a new bid to merge with the UK firm three days after the deal appeared to have been scuppered by a rival bid.

In a statement required under British takeover rules, Greencore said it would save some £15m from overhead cost savings, £20m from purchasing and supply-chain improvements, and £5m from financing and tax efficiencies.

At least half of these synergies could be realised within a year of merging with Northern, with the full amount being achieved by the third year of the merger, it said.

The statement came amid rising expectations that chief executive Patrick Coveney may try to top the 73p-a-share cash offer for Northern made by chicken tycoon Ranjit Boparan last Friday.

By the close of trading yesterday, shares in Northern had risen to 74p, indicating the market was pricing in a new submission from the Irish company.

Last November, Greencore and Northern agreed a "merger of equals" to create Essenta Foods in an all-stock deal.

Those plans appeared to be in tatters, however, after Mr Boparan made an all-cash bid for Northern that far exceeded Greencore's offer, valuing Northern at £341m.

The size of Mr Boparan's bid -- it carries a 51pc premium on the notional value of the Greencore offer -- seemed to have closed the door on any comeback from Greencore.

Yesterday, however, the Irish company said it "recognised the importance attached by the Northern Foods board to the certainty of cash value in their decision [to back the bid]".

"Given this development, the board of Greencore will now consider its options and as part of this process intends to seek the views of both Greencore and Northern Foods shareholders," it said.

Those words have been taken as an indication that Mr Coveney may look to add cash to his company's current offer. Greencore has 28 days to make a new proposal to Northern.

Industrial logic

Market watchers were split on whether Greencore should try to beat Mr Boparan.

Evolution Securities' Warren Ackerman said adding a cash element to Greencore's proposal was possible, but difficult.

"The industrial logic of a Greencore-Northern tie-up appears to be higher than that of a Northern-Boparan," he said.

"Boparan's bid does not guarantee to pay a final dividend [expected to be 3p] effectively meaning the bid Greencore is competing with is 70p, not 73p.

"If Greencore were to add 25p cash to the existing merger terms, we think the offer should be seriously considered by shareholders.

"Greencore are down but not out," he added.

Paul Meade of NCB, however, disagreed, instead advocating that Greencore walk away from Northern and concentrate on its own business.

"An enhanced Greencore offer risks undermining the estimated synergies and increasing the financial leverage [on the new company].

"Greencore's best option is to exit the bidding process for Northern Foods and focus on protecting its margin against input inflation rather than risk its balance sheet in an auction," he said.

Bloxham's Joe Gill said: "Having explicitly acknowledged the need for consolidation with the Essenta proposal, Greencore must now pursue other options that allow it leverage the benefits of scale."

Greencore finished the day down 5.2pc to €1.14.

Irish Independent

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