Golden Vale's business is set to be transformed in scale if a proposed acquisition of the British consumer foods group Prize Foods for more than £130 million (€165 million) is completed.
Golden Vale shares were suspended yesterday after the company said it was in negotiations on an acquisition which would constitute a reverse takeover under the stock exchange's listing rules. A reverse takeover under listing rules means that the value of the company being acquired is larger than the acquirer. Golden Vale - as the potential acquirer - has a market capitalisation of €167 million (£132 million) at its €1.05 suspension price.
No spokesman for either Golden Vale or Prize Foods was available. Golden Vale did not identify the company it plans to acquire but industry sources believe that the target is Prize Foods Group, which is involved in a range of consumer foods - own-label pies and sausages, sandwiches, ready meals and potato products. The company operates in five divisions, and analysts believe that most of Prize Foods' business would complement Golden Vale's own expanding consumer foods range and particularly its Rye Valley frozen meals operation in Carrickmacross and Enniskillen.
As a private company which is the product of a £57 million sterling (€95 million) 1997 management buyout from Booker, Prize Foods does not publish its accounts. In 1998, however, it had sales of around £150 million sterling, operating profits of £10.4 million sterling and pre-tax profits of £6.9 million sterling. That 1998 turnover, however, would have been significantly boosted by the inclusion of the Jus-Rol potato products business - acquired in late 1998 from Diageo for £20 million sterling and since renamed Cheviot Foods.
At the time of the management buyout in 1997, which was backed by 3i and Electra, Prize Foods managing director Mr David Sims said the management group planned to exit the business, probably through a 2001 flotation. That exit now seems likely to be a takeover by Golden Vale, assuming the two groups can agree terms.
Analysts were cautious about commenting on the planned takeover until they see the terms of the deal and how it is to be financed. One analyst said, however, that despite the scale of the deal, Golden Vale could probably handle a £130-140 million acquisition through debt and without raising funds on the market.
Golden Vale is forecast by its own broker Goodbody to have interest cover of around eight times at the end of the current year. A debt-funded £140 million acquisition could reduce this interest cover to little more than three times, although Golden Vale could ease the pressure on interest cover by further asset disposals, and particularly the sale of the Charleville milk operations back to Golden Vale Co-op for upwards of £25 million.
It is understood that this buyback - an integral element in managing director Mr Jim Murphy's strategy to fundamentally restructure the group - is close to completion.
