SHARES IN Irish convenience foods group Greencore soared by 29 per cent yesterday after it announced plans to merge with British-based rival Northern Foods to form a new entity called Essenta.
The 50-50 merger will create an Anglo-Irish business with sales of £1.7 billion (€2 billion) and 17,000 staff. The deal has been recommended by the boards of both companies.
Greencore chief executive Patrick Coveney, who will take the reins at Essenta if the deal is approved, said the merger would yield synergies of £40 million a year.
He described the cost savings as very significant and said they would lead to an improvement in profit of more than 30 per cent for the combined entity.
The new company expects to achieve annual savings in overheads of £15 million; about £20 million in purchasing; and £5 million in tax efficiencies.
At least half of these cost benefits are expected to be achieved within 12 months. The bill for the synergies will be £45 million.
“This merger offers compelling business benefits to both sets of shareholders,” Mr Coveney said yesterday.
Essenta’s corporate headquarters will be in Ireland, where it will also be tax resident.
Northern Foods’ head office in Leeds will close and Mr Coveney said additional jobs are expected to be created at its HQ in Dublin.
But the merged entity will be listed on the London Stock Exchange; its reporting currency will be sterling; and the bulk of sales will be derived from the UK.
Its chairman will be Anthony Hobson, who holds the same role with Northern Foods. Greencore chairman Ned Sullivan will be Mr Hobson’s deputy. Northern Foods’ chief financial officer Simon Herrick will assume the same role with Essenta and will move to Dublin.
The company’s chief executive, Stefan Barden, is to leave the business when the deal is completed.
The seven largest shareholders in Greencore and Northern Foods gave their support to the deal in the 24 hours before the announcement. This equates to 30.3 per cent of Greencore’s shareholders and 11.8 per cent at Northern Foods.
Circulars relating to the merger will be sent out in mid-December with shareholder meetings likely to be held in January. Regulatory approvals will be sought in both Britain and Ireland. Essenta is expected to begin trading in April.
Greencore is the world’s biggest sandwich maker and sells one-in-three Yorkshire puddings in Britain. It also produces ready meals under licence for Weight Watchers; has a range of chilled and ambient sauces; and sells cakes and desserts.
Northern Foods’ products include Fox’s biscuits, Goodfella’s pizzas and a range of frozen foods under the Donegal Catch and Green Isle brands.
It also makes sandwiches and salads, and chilled ready meals.
The combined entity generates sales of £200 million from manufacturing activities here and sales into Ireland from British operations.
Greencore yesterday also published its full-year results. Sales from continuing operations rose by 6.9 per cent to €856 million. Its operating profit from continuing operations was up 17.6 per cent to €59.7 million.
Group debt was reduced by 31.8 per cent to €193.4 million from €283.5 million.
This is expected to cut Greencore’s bank interest costs this year by €19 million.
