Sale is last chance for Greencore to go global
Management has achieved this sale at a time when the sector is on its knees and when production at its Athy plant could be reduced to 60% of capacity this year.
French group Axereal has agreed a price of €116.25 million. Due to the size of the disposal relative to the group, completion is conditional on approval by Greencore shareholders at an EGM. Doubtless the IFA will have questions to ask at that meeting.
John Bryan, IFA president, stressed that malting growers’ contracts must be guaranteed into the future. He said he would be seeking an early meeting with the new owners and with Greencore to ensure continuity of supply contracts.
Mr Bryan welcomed comments by Axereal chief executive Dominique Bamas, that the company would support growers in Ireland. He said it was important that Diageo, the main customer, gave a commitment to support growers who have consistently delivered a quality product.
IFA grain committee chairman Noel Delany said all growers who have had contracts with Greencore must be given the option to supply in the future.
“The new owners must recognise that the viability of the malting business in this country depends on growers making a margin over costs,” he said.
Mr Delany noted that Axereal has committed to retaining the maltings in Athy, Co Kildare, as part of its overall operations. He would be seeking assurances that existing in take points would also be retained.
The range of concerns points to underlying concerns that the business here will struggle to survive.
Greencore shut its sugar business on the grounds that it could be produced cheaper elsewhere.
With Heineken importing some of its malt requirements at this time, the assurances given by the French group may not survive.
If, for example, Guinness decides it is cheaper to import its future requirements, then Athy will not survive.
Greencore may yet hold the dubious distinction of seeing off the malting business here as well as sugar processing.
The group will operate with less financial risk as the cash windfall will move its debt closer to 2x EBIDTA against 2.8x previously.
The critical thing is that the sale clears the decks for the group to evolve as a truly global player in the convenience food markets.
Chief executive Patrick Coveney summed up the group’s view last week.
“Today’s transaction completes Greencore’s journey into a focused convenience foods player, with clear leadership positions in the UK market and a growing regional presence in North America.
“Having tested the market with several potential purchasers, we believe that the transaction announced today represents an excellent deal for Greencore shareholders, but also one that will provide enhanced opportunities for Greencore Malt’s suppliers, customers and employees.
“Looking ahead, this deal will tighten our strategic focus, strengthen our balance sheet and provide capital to fund future growth over time in both our UK and US convenience foods markets.”
This is last chance saloon time for Greencore.
It has made several attempts to establish a group with global heft, but so far has struggled to find the right formula. It’s market capitalisation is €260m, significantly less than the €440m it paid for Hazlewood in 2001, its core convenience food subsidiary, based in Britain.
Hopefully, the pick-up internationally will allow the group to finally come of age as an established global food business.
