UPDATE: UK: Northern Foods, Greencore merger details revealed
Essenta will mean the creation of a company with annual sales of around GBP1.7bn
Patrick Coveney, who is currently CEO of Greencore, and who will hold the same role in soon-to-be-formed Essenta said that the deal is a "really, really, nice combination where everybody wins".
The deal will mean the creation of a company with annual sales of around GBP1.7bn (US$2.7bn). The company will be created by giving 0.4479 of new Greencore shares for each Northern Foods share and is expected to complete in March 2011.
Coveney, said the move, which already has the support of 30% of Greencore's shareholders by value and 12% of Northern Foods' shareholders by value, would achieve cost synergies of GBP40m within three years.
Coveney described the projected synergies as "actually pretty low", reflecting around 2% of combined sales and that 90% of the synergies would be achieved within two years. The company expects to achieve the cost reductions through a GBP15m reduction in overheads, a GBP20m saving in purchasing and supply chain, and a GBP5m saving in finance and tax.
However, the company expects to incur some GBP45m in one-off costs related to the merger, with around two-thirds to be incurred within the first twelve months.
Describing the move, Coveney said: "We are creating an exciting new food company, that in truth is not a merger of equals or the best of both, but a better than both in terms of the outcomes we are seeking."
The company sees benefits in a number of areas, aside from the obvious operational and supply chain efficiencies. Coveney outlined improved credit and debt facilities, a FTSE 250 listing, as well as a reduced tax rate for Northern Foods' elements of the business as it becomes headquartered in Dublin and benefits from Ireland's reduced tax rate.
Operationally, the company sees a highly complementary customer base in each of their food-to-go and ready meal operations - with Greencore's customers including Asda, Sainsbury's, The Co-operative and Morrisons in food-to-go, and Northern Foods servicing M&S, Tesco, and Costa Coffee.
In this channel, Coveney sees strong growth of 9.8% as well as "lots of opportunities" in management, supply chain, purchasing and distribution. It has a similar complementary customer base in each of their food-to-go operations and similar opportunities for growth.
In addition, Coveney sees "real potential" to do more in alternative channels as "both of us come at this with unique and complementary skills". Adding that Greencore has a unique direct store distribution capacity, "into which we can put more product", while Northern Foods has done a "really good job" of building its coffee shop business and catering business with BA.
The newly formed company has already appointed a new board and executive team, in which Coveney said there was "no fudging", and will include the best from each company. The executive team will include Coveney as CEO, Simon Herrick as CFO, Di Walker in charge of UK food for later, Kuldip Kular on UK food-to-go, Graham Hunter will be responsible for branded products in the UK and Ireland, Liam McClennon will take charge of US convenience, while Eion Tonge will become development director and Cormac Waters will join as integration director.
In terms of growing the company, Coveney said there would be "a bias towards organic growth in the near term" while the new company works through the integration. However, he added that there might be the opportunity to "add a little bit more with categories on the margins" and that the company has the "financial horsepower to do more".
The market reacted positively to news of the merger with shares in Greencore up 28.5% at 15:08 to EUR1.33 a share, while shares in Northern Foods were up 24.31% to GBP56.25 a share.
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