Northern Foods’ shares headed, well, north today (22 December) after it emerged that the UK food group, which is planning to merge with Ireland’s Greencore, could be the subject of a hostile takeover bid.

Shares in Northern closed up 4.1% at 63p, although the stock had at one point today reached 65.9p as speculation swirled around the Fox’s biscuits maker.

First thing this morning, The Daily Telegraph reported that food tycoon and Northern investor Ranjit Boparan was planning to launch a GBP300m takeover bid for the UK firm.

Rumours of Mr Boparan’s interest had grown in recent weeks as he amassed a stake in Northern in the wake of the company’s announcement of plans to join forces with Greencore.

The entrepreneur, who through his Boparan Holdings business runs poultry supplier 2 Sisters Food Group and fish-and-chip shop chain Harry Ramsden’s, owns a 6.6% stake in Northern and the report this morning suggested he had already approached the UK group but had yet to table a formal offer.

Northern responded to the report by issuing a statement to confirm that Mr Boparan had asked the company for information under the City’s takeover regulations but had indeed not made a bid.

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The company, however, re-emphasised its belief in the benefits of its planned merger with Greencore and said its board “unanimously” supported the plans.

A couple of hours later, Boparan Holdings confirmed its interest in Northern and said it was “at a preliminary stage in evaluating a possible cash offer” for the business.

The speculation and confirmation fed Northern’s shares throughout the day, although by the close of trading the stock had dipped from its intraday high.

Greencore’s shares, however, tumbled as Mr Boparan’s interest in Northern spooked investors. The Irish food group, which today along with Northern sent the details of the companies’ plans to its shareholders, said the proposed merger would benefit investors on both sides.

Greencore group development director Eoin Tonge told just-food that the planned merger with Northern “represents a compelling opportunity for value creation for both Greencore and Northern Foods shareholders”.

Tonge said the combined company, to be called Essenta Foods, would be “a business with real scale in the industry and substantial synergies”.

It is, indeed, hard to dispute the logic behind Greencore and Northern’s plans. The two companies are key own-label suppliers to UK supermarkets and the combination of the businesses would create a company with greater scale and more leverage to deal with the country’s powerful multiples.

The combination will take capacity out of the UK’s chilled convenience food sector, a market where suppliers have struggled to make decent returns in recent years. What’s more, under the companies’ plans, the merger will lead to cost savings of GBP40m within three years of the deal completing.

As Mark Lynch, an analyst at M&A advisory firm Oghma Partners, told just-food last week, the planned merger between Greencore and Northern is “driven absolutely by economic sense and logic”. He said: “These two companies are coming together to take cost out of the industry, which is what the trade is demanding of them.”

If Boparan acquired Northern, there could be some synergies between the two companies, which are both private-label suppliers to many of the UK’s largest food retailers, even if in different categories. However, a combination with Greencore, which shares many of the convenience food businesses in which Northern operates, would lead to higher cost savings and would be a far better move.

Some industry watchers have also commented that Northern’s pension deficit could be an obstacle for Boparan. Under the merger plans devised by Greencore and Northern, some GBP15m will be paid annually for the next three years to the UK firm’s pension trustees to go towards fixing the company’s GBP140m pension deficit.

Investors in Northern and Greencore will vote on the proposed merger next month. Northern’s shareholders would do well to listen to their board, rather than overtures from Mr Boparan.