Greencore advised to ‘walk away’

GREENCORE has been advised not to try and trump Ranjit Boparan’s £342 million (€401.7m) bid for Northern Foods and to walk away from the sale process by NCB stockbrokers.

Greencore’s board yesterday hinted at the possibility of adding a cash element to its initial share swap offer, saying it “recognises the importance attached by the Northern Foods board to the certainty of cash value in their decision to change their recommendation”.

Shares in Northern Foods shares gained 17%, to 74p yesterday, on the possibility of Greencore raising its offer with a cash sweetener. Greencore shares fell 5.4% to €1.14.

Greencore initiated the takeover process of Northern Foods by creating Essenta Foods as a merged entity for the two companies, but this fell apart when Northern Foods agreed to be taken over by Boparan Holdings (BH). Northern Foods, the maker of Goodfella’s Pizza and Fox’s biscuits, is recommending that shareholders back the bid pitched at a near 70% premium to Greencore’s all-share offer. Late yesterday Greencore outlined the details of the £40m annual costs synergies and savings it has identified should its offer be accepted.

NCB analyst Paul Meade said he believes Greencore’s best option is to exit the bidding process for Northern Foods, to focus on the challenge of protecting its margin against input inflation rather than risk its balance sheet in a “Dutch” auction.

“Given that the BH offer is cash and recommended, we estimate that Greencore would need to sweeten its offer by at least £150m and also increase the overall portion of cash in its offer. Despite the underlying attractions of a merger of Greencore and Northern, we believe Greencore shareholders would suffer value destruction if its board enters a Dutch auction to secure Northern Foods given the punchy valuation multiple of the BH offer and the challenging trading environment facing food manufacturers in the UK. An enhanced Greencore offer risks undermining the estimated synergies and increasing the financial leverage,” NCB said.

Northern Foods had agreed last November to merge with Greencore to create Essenta Foods.

Analysts at Exane BNP Paribas agreed that cash could prove to be the decisive factor in investors favouring Boporan’s offer over Greencore’s.