City split on Northern's plan for brands

By Ben Bouckley

- Last updated on GMT

Related tags: Goldman sachs, Debt, Finance

City split on Northern's plan for brands
The City is uncertain about Ranjit Boparan’s plans for Northern Foods, with analysts divided on whether he needs to sell brands such as Fox's Biscuits and Goodfella's to pay down debt following his £342m takeover.

A Northern Foods spokesman told that Boparan had told employees of his ambitious plan to increase the combined turnover of Northern Foods and 2 Sisters Food Group from £2.1bn to £3bn by 2015.

But Shore Capital analyst Clive Black told the Yorkshire Post that the pressure was on to reduce debt levels: “He ​[Boparan] has taken his business right to the limit with what he can debt finance. We would expect him to sell most of the branded businesses over time to reduce debt.”

Debt funded acquisition

Boparan’s Northern takeover will be funded via a credit facility from Goldman Sachs in addition to an intra-group loan between the businessman’s companies Boparan Holdings and BH Acquisitions, with the facility also used to pay off Northern’s existing debts of around £243.8m.

Damian McNeela, analyst, Panmure Gordon told that he disagreed with Black’s comments: “Boparan has said all along that he would retain the branded businesses, and I think he probably will do.

“He seems serious about building a a major UK food business and has had some exposure in branded businesses, even though he isn’t a historic brand builder.”

McNeela said there was “significant scope to improve the brands, particularly Goodfella’s,”​ which he said had been hit badly by business lost to Dr Oetker. The company also recently scrapped a £5m marketing campaign for the brand.

Evolution Securities analyst Alex Sloane agreed, and added that he supported Black’s comment that a renewed marketing spend was crucial to effect a “material turnaround” at ​Goodfella’s. ​[It] has been going backwards for the last 18 months, so sorting it out is clearly a priority.”

Zero information

As for whether there is pressure on Northern to pay down debt following the takeover, McNeela said: “It very difficult to comment to date, as we’ve had almost zero information ​[from Boparan since the takeover on his plans for Northern]."

McNeela said the assumption was that Boparan had taken on a significant amount of debt to fund the purchase, but that the sale sanction from pension trustees showed that they were comfortable with the financial implications of the sale.

Consequently, McNeela added, Boparan was under no immediate pressure to ditch the brands.“Unless he loses business because he can’t cope with managing the brands, which I think is unlikely, there won’t be much pressure on him to sell.”

The Northern Foods spokesman was unable to comment on whether Boparan planned to sell or retain the brands, but said that the businessman recognised their importance.

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