Greencore bows out of Northern Foods chase

9th Mar 2011 15:46

Irish food group Greencore has waved the white flag in its battle with Boparan Holdings for control of Goodfellas pizza and Fox's biscuits maker Northern Foods.The Irish ready meals provider had agreed a merger with Northern Foods in November 2010 only to see the wedding gatecrashed by food magnate Ranjit Boparan, whose company won acceptance of its takeover proposal from the Northern Foods board with a 73p per share offer that valued Northern Foods at £342m.Greencore confirmed market speculation that it had been working with a partner to see whether it could sell off chunks of the Northern Foods branded business in order to raise funds to buy the bits of the UK company it was interested in."This relatively complex structure required a range of stakeholders to reach agreement," the company statement said. "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," it added.The company said that costs incurred from the thwarted merger would be treated as exceptional charges in the first half of the 2011 financial year. Panmure Gordon regarded the capitulation statement as virtually inevitable. "Although we believed in the potential significant synergy opportunities in the merger between Northern and Greencore, it was, we thought, always going to be difficult for Greencore to triumph over Boparan's all cash offer. In light of Greencore's decision we would expect investors to accept Boparan's all cash offer of 73p /share, which implies a valuation of 11.0x P/E and EV/EBITDA of 6.8x for current year 2011," the broker said. "Boparan already has control over 34.4% of Northern's shares in issue. The current deadline for acceptances is 1pm on 16 March," Panmure Gordon added.As for Greencore, the broker expects management will pursue other consolidation activities within the sector. "One potential candidate, in our opinion, is Premier Foods' Brookes Avana business, which we expect could achieve a valuation of between £120m and £140m," the broker said.