Irish ready-meals supplier Greencore and Fox‘s biscuits group Northern Foods have agreed to merge in a transaction that will create a company with annual sales of around GBP1.7bn (US$2.7bn).

The new company, to be called Essenta, will be created by giving 0.4479 of new Greencore shares to every shareholder of Northern Foods. Upon completion of the merger, shareholders of both firms will each hold 50% of the equity in the new group.

Essenta will supply UK retailers including Tesco and Marks & Spencer Group, which both firms said will lead to annual cost savings of GBP40m within three years.

Anthony Hobson, chairman of Northern Foods, said: “The proposed merger is a great opportunity to develop fully the potential of both companies. It will create a sustainable, top-tier organisation which will be capable of delivering best in class food products and innovative solutions to its customers.”

Patrick Coveney, the CEO of Greencore, will become the CEO of the new firm.

The new firm is expected to have a premium listing and be traded on the main market of the London Stock Exchange. The merger is expected to complete during the second quarter of 2011.

Coveney said: “Essenta Foods presents a compelling opportunity for all stakeholders. It creates a substantial chilled prepared food company in fast growing categories in the UK which is enhanced by strong branded positions in biscuits and frozen food. The time is right for both companies to build a real ‘better than both’ business and I look forward to bringing together the teams from Greencore and Northern Foods to deliver on this opportunity.”

Click here to view the full announcement, click here for further details on the merger, or here for the analyst response to the plans.