In the spotlight: Boparan outfoxes Greencore in bid for Northern
The failure of Greencore to seal its merger with Northern Foods can either be viewed as a missed opportunity, a pragmatic withdrawal or a canny gazumping manoeuvre by rival bidder Ranjit Boparan. There is probably something of the truth in all three interpretations.
Certainly, faced with Boparan's GBP342m (US$550m) cash bid against its own all-paper merger proposal, the Irish company has decided that discretion is the better part of valour.
But analysts appear fairly agreed that while this was disappointing for Greencore, which would have benefited from the synergies offered by a tie-up with Northern - and had put several months of work into making the merger a reality - this was a sensible course of action.
Clive Black, analyst at Shore Capital, believes it would be "totally wrong" to view Greencore's withdrawal as faint-heartedness. "All opportunities in financial terms have got limits in how far they can be taken and in this respect the risks to Greencore from over-extending were clear, and therefore they stood back. That is just good management," Black tells just-food. "They weren't shown to be dogmatic."
This view was echoed by Joe Gill, analyst at Irish-based stockbrokers Bloxham, who says there was no appetite among Greencore shareholders for a bidding war. "The original logic behind merging with Northern was very well received and I think shareholders at Greencore really seemed to go along with, but they weren't happy with the notion that, once there was a very competitive bid on the table, a cash bid at that, that Greencore should come back and exceed it."
Greencore will be keen to look for alternative acquisition targets in a bid to add scale to its own-label business, a sector widely seen to be in need of consolidation to combat the ever-growing power of the UK's supermarket chains. However, Gill says it has to be careful not to launch into "some sort of a knee-jerk transaction" just to be seen to be doing something after the Northern deal foundered, particularly if it now has to go shopping with cash.
There are a number of possible acquisition targets out there but some analysts have suggested Greencore could now make a move for the Premier Foods plc own-label operation, Brookes Avana.
Damian McNeela of Panmure Gordon says he expects Greencore to look "for other opportunities to consolidate the sector" and Brookes Avana was one possible target "amongst others".
It is not hard to see why Brookes Avana is being seen as a likely target. Not only did it book an operating loss of GBP98m last year, suggesting it too could benefit from scaling up, but Premier has expressed its desire to focus on its branded food businesses. Synchronicity may be pointing in the direction of a Greencore/Avana merger if the company can finance such a deal and it is not seen as a hastily found second prize.
The clear winner in this story is Ranjit Boparan who by virtually universal agreement appears to have played an extremely canny game.
Yesterday (10 March), Boparan had received acceptances for around 50% of Northern's shareholder base, requiring 75% by 16 March to seal the takeover. Analysts are agreed that this will be achieved.
While Boparan could be characterised as coming from nowhere to pull off a substantial corporate coup, that would be over-romanticising somewhat. He was already a shareholder in Northern and his company Boparan Holdings, with activities in the poultry and fish sectors, is considered to be a well-run business. Boparan is a major supplier of processed chicken products to Tesco.
But some have suggested the investment community has rather under-estimated a man who keeps a deliberately low profile. Others have painted him simply as a concerned Northern shareholder who saw better value in doing a deal himself than in what Greencore was offering.
That assertion, however, which has certainly convinced the Northern board and many of its shareholders, will now be tested. There are those who believe that the slick corporate manoeuvre aside, Boparan may be over-extending itself with the cash bid for Northern.
For this reason, Black believes Boparan may ironically end up attempting exactly the same deal Greencore was looking to put in place when it realised there was a rival bidder in play - namely to sell off Northern's brands and focus on the own-label operations. "It's our expectation that Boparan will be looking at the same course of action and we would certainly not rule out that Fox's and Goodfella's may be sold by Boparan to reduce its indebtedness," Black says.
Others disagree, citing the resistance of the Northern pension trustees to Greencore's attempts to hive off the branded businesses to a private-equity partner.
"We should imagine that there are quite onerous conditions set by the trustees on what he [Boparan] can and cannot do with the brands," says McNeela. Gill says the pension trustees' opposition had been a "huge impediment" to Greencore's plans and he expected that also to be the case if Boparan were to attempt something similar.
McNeela adds: "I would also point you back to what he said publicly about his intention towards the business, that he doesn’t want to split it up."
It should also be borne in mind that while Boparan has said it would combine Northern with its 2 Sisters Food Group poultry business, the combined entity having annual revenues of GBP2bn, this merger does not offer the same kind of synergies in the own-label ready meals sector as a Greencore/Northern Foods merger.
"There is going to be no rationalisation or concentration in prepared food market share between Boparan and Northern," Black points out. "They are in different segments."
And that facet of the deal leads back to the question of how and when the UK own-label manufacturing sector may achieve the consolidation most think is surely coming.
Some deal involving Brookes Avana must be a strong likelihood in the coming months. Equally, while Greencore's failure to merge with Northern means it could now look elsewhere for acquisitions, the management's failure to secure the merger may have made the Irish company itself a more attractive acquisition target.
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