A RIVAL bid for Greencore target Northern Foods could be worth as little as 54p a share, NCB Stockbrokers said yesterday.
NCB analyst Paul Meade said any bid from businessman Ranjit Boparan was likely to be at the average cost per share of his current stake in Northern. Mr Boparan holds 6.6pc of the company, bought up at an average cost of between 54p and 58p a share.
A bid of 54p, while at a premium of about 5p on the notional value of Greencore's merger offer, would be significantly lower than previously estimated. It has been speculated that Mr Boparan may bid as high as 75p to 80p a share. Northern closed yesterday at 62.25p.
Greencore's share price, which fell for five out of six days before closing flat yesterday, suggests the market has priced in a bid from Mr Boparan, who has until Friday to either make a bid or walk away.
Mr Meade said: "We believe that Boparan is likely to secure a time extension or make a full bid triggering a response from Greencore in the form of an additional cash offer to Northern shareholders.
"The stakes are extremely high for Greencore given the merger's opportunity to take out a key competitor, add scale, customer and product diversification and maintain a healthy balance sheet.
"A Boparan bid [between 54 and 58p] could require Greencore to at least increase its offer by 10p per Northern share, equivalent to £43m (€51m) which would reduce the synergy benefits by 8-10pc from higher funding costs and increase the merged entity's leverage by up to 17.5pc or £438m.
"To match Northern's average share price of 62p since the emergence of Boparan's interest, would cost Greencore £65m while a higher cash offer cannot be ruled out, increasing the pressure further on Greencore."
Meanwhile, it has been reported that Mr Boparan has begun negotiations with the Northern Foods pension trustees. Getting a deal on the pension is widely seen as the main stumbling block to an agreement for Mr Boparan.