Greencore calls time on Northern romance

In a stock exchange announcement the Irish convenience foods group said: “For some time the board of Greencore has believed both in the considerable strategic merits of consolidation in the UK convenience food sector and in the strong logic of a combination between Greencore and Northern Foods.”​

Funding partner canvassed​

It added that Greencore had been working with an unnamed partner over several weeks, in order to agree a “simultaneous sale of certain of the Northern Foods branded businesses”​ to match 2 Sisters Food Group owner Boparan’s existing £342m all-cash offer.

23.03% of Northern Foods shareholders accepted this before an initial March 1 deadline set by the businessman's subsidiary BH Acquisitions, in what one analyst suggested was an attempt to draw Greencore out​.

Greencore said talks with the partner were "intended to provide significant funding and allow Greencore to acquire only the parts of the Northern Foods business with the greatest synergy potential".​

“This relatively complex structure required a range of stakeholders to reach agreement. However, after substantial investigation, the board has determined that an improved offer could not be concluded on terms which would deliver sufficiently strong returns to Greencore shareholders.”​

Summer dreams, ripped at the seams…​

Commenting on the announcement, Shore Capital analysts Clive Black and Darren Shirley said: “The sense of disappointment from the Dublin-based company is palpable and understandably so; Greencore showed astute timing and considerable strategic nous in its proposed merger with Northern and so the creation of Essenta Foods.”​

Black and Shirley added that Greencore could not seal a deal that would yield it Northern’s own-label businesses – while selling off branded components such as Fox’s Biscuits and Goodfella’s Pizzas to any third-party to fund a higher cash offer – given concerns about shareholder returns.

“​Incidentally, we await to see if Boparan follows exactly the same course as it also seeks to de-leverage, we sense Boparan is close to exceeding its financial comfort level with this deal,”​ they said.

But despite missing out on Northern, the analysts noted that Greencore’s ambition to have a “stronger platform in the UK prepared foods market is a sound one, and whilst Northern may have been the dream corporate ‘romance’ there are plenty more fish in the sea”.​

Greencore must dust itself down​

“We now look for Greencore to dust itself down and press on with delivering what was already a good performance from its UK operations, steadily building the opportunity it has already created in the USA and outlining its ambition to further consolidate in the prepared foods market."​

Damien McNeela, analyst, Panmure Gordon said that despite “potential significant synergy opportunities ​[in the event of any Greencore-Northern merger] it was...always going to be difficult for Greencore to triumph over Boparan’s all-cash offer”.​

He believes Northern shareholders will now accept Boparan’s offer by his revised March 16, 1pm deadline, where the businessman already controls 34.4% of Northern’s share issue, but is seeking to gain a 75% unconditional controlling stake as quickly as possible.