Wednesday 24 January 2018

Meet the game changer

With this week's sweet €2bn Northern Foods merger, the Oxford scholar has transformed the former Irish sugar company

This week's merger with UK food producer Northern Foods means that Greencore boss Patrick Coveney has completely transformed the former Irish Sugar Company after just two-and-a-half years in charge.

It should have been the business story of the week. Greencore and Northern Foods, the two largest suppliers of own-label products to the UK supermarkets, merging to create a combined company with an annual turnover of almost €2bn and operating (pre-interest) profits of almost €125m.

Even better, the merger would yield annual savings of more than €40m. If Essenta, as the merged company will be renamed, can achieve these savings then annual profits would rise to almost €170m.

Not surprisingly, the markets loved it, with the Greencore share price -- which has been going nowhere for the past two years -- leaping by 30pc and the Northern Foods share price leaping by 25pc.

Unfortunately for Mr Coveney and Greencore, the Northern Foods deal was overshadowed by the dramatic events in Dublin and Brussels, which saw the IMF and the EU take de facto control of Ireland's economic affairs.

With the Irish financial crisis dominating the headlines worldwide the Greencore /Northern Foods deal was buried on the inside pages.

Although it can trace its origins to 1926, when the first Irish sugar factory was built in Carlow, the modern Greencore first began to take shape when it paid £349m (then worth almost €600m) for UK food company Hazlewood Foods.

Founded by former Manchester City defender Francis Lee, Hazlewood had grown to become the largest producer of ready-made sandwiches, chilled meals and generic mineral water in the UK.

In the decade since the Hazlewood acquisition, Greencore has gradually shed its legacy businesses. It closed its last Irish sugar factory at Mallow in 2006, while it sold its malting operation to French company Axareal for €116m earlier this year.

Unfortunately for Greencore, the transformation left investors unimpressed. Instead of seeing a company that had successfully diversified away from its sugar manufacturing roots they saw one that had overpaid for acquisitions and whose margins were being relentlessly squeezed by the UK multiples.

A bit like Northern Foods in fact. Headquartered in Leeds, it was founded in 1937 and grew into the largest supplier of ready meals to Marks & Spencer.

From 1980 to 2002 it was chaired by the Dublin-born Chris (now Lord) Haskins. And that's not the only connection Northern Foods has to Ireland. The company also owns the Goodfellas' frozen pizza brand, which has plants at Naas and Longford.

Although the deal is being presented as a no-premium, all-share merger, with shareholders of both companies ending up with approximately 50pc each of the enlarged company, it is in reality a Greencore takeover of Northern Foods, with Mr Coveney becoming chief executive of Essenta and the new company having its headquarters in Dublin. It will also be resident in Ireland for tax purposes.

However, Essenta will be giving up its Dublin listing and will have its primary listing in London. It is envisaged that it will also have a secondary listing in Dublin. By moving its primary listing overseas, Essenta is following the example of fellow-Irish food company Aryzta, formerly IAWS, which switched its primary listing to Zurich.

The new company will be by far the largest supplier of own-label food products to the UK multiples. In addition to Northern's existing long-standing relationship with Marks & Spencer, Greencore is a major supplier to Sainsburys, Asda and Morrisons.

It is a tribute to the high regard in which Mr Coveney is held that it was he, rather than Northern Foods chief executive Stefan Barden, who was chosen for the top job at Essenta.

Of course, coming out on top is exactly what Mr Coveney was born to do. Still only 40, he is the son of former Fine Gael minister Hugh Coveney and the brother of current Fine Gael communications spokesperson Simon Coveney.

After attending the exclusive Jesuit-run Clongowes Wood, which also produced Ryanair boss Michael O'Leary, Mr Coveney went on to study commerce at UCC. He graduated with first-class honours in 1992 and was also awarded the student of the year award for that year. After UCC the next step was New College, Oxford, where he was a Rhodes Scholar and from which he graduated with a doctorate in business administration.

As well being one of the outstanding students of his era Mr Coveney was also an excellent rugby player, playing second row for UCC and at under-age level for both Munster and Ireland.

At Oxford he won a coveted "blue" -- awarded to students who represent the university in competitive sport -- in rugby. After graduating from Oxford, Mr Coveney continued to play rugby for London Irish.

With such a remarkable pedigree, the young Coveney was never going to moulder away in the audit department of one of the major accountancy practices. Instead of opting for accountancy, the usual career route for commerce graduates, Mr Coveney was snapped up by McKinsey, very much the crème de la crème of management consultants.

After spending a decade with McKinsey in the US and Ireland, Mr Coveney was head-hunted to join Greencore as finance director in 2005, when his predecessor Patrick Kennedy left to become chief executive of quoted bookmaker Paddy Power.

Although Mr Coveney, who was just 34 when he was appointed finance director, was very much the heir apparent at Greencore, it almost didn't happen.

In June 2008, a €21m accounting fraud was discovered at Greencore's mineral water business. Luckily for Mr Coveney he had become chief executive three months earlier. If the fraud had been discovered while he was still finance director it is highly unlikely that he would have been promoted to chief executive afterwards.

Unlike his brother, Simon, Patrick Coveney's personal manner can be aloof, even chilly. Is this, as his detractors allege, a patrician disdain for those who don't share his immense talents or merely, as his many friends would argue, the intense shyness of an extremely tall man? Coveney stands six feet six inches.

The early days of Mr Coveney's reign as Greencore boss were dominated by the fallout from the Irish property boom. Incredible as it may now seem, Greencore was briefly reckoned to be a property play. This was because the closure of its Carlow sugar factory in 2005 and the Mallow factory a year later, left Greencore with a huge landbank.

This attracted the attention of property developer Liam Carroll, who accumulated a potentially decisive 29.5pc stake.

It was only when Mr Carroll's Zoe Developments Group collapsed in August 2009 and the shares were sold to a group of institutional investors, that the threat to Greencore's independence receded.

With the Carroll shareholding having been disposed of, the former management consultant was able to plot Greencore's future. Given the complementary nature of their businesses, Northern Foods was an obvious choice.

It also helped that a number of Northern's institutional shareholders were pushing for a deal with the Irish company. This meant that when the two companies finally got together to discuss a possible merger last June, Northern was in the mood to do a deal.

Will the merger succeed? Can Mr Coveney capture the savings for his shareholders rather than see them frittered away in price reductions to its supermarket customers? Having done the deal, Mr Coveney now has to make it work.

Irish Independent

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