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European Business News – Week ending March 18, 2011

 Breaking News
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European Business News – Week ending March 18, 2011

March 21
10:58 2011

Food business entrepreneur Ranjit Singh Boparan, chief executive of Boparan Holdings, which incorporates 2 Sisters Food Group, one of Europe’s largest poultry processors, is nearing completion of his audacious £342 million acquisition of Northern Foods. Having now effectively gained control of 79.5% of Northern Foods, the offer has been declared unconditional.

The deal will create a new powerhouse, with a turnover of more than £2 billion, within the British convenience foods market. The acquisition is one of the most significant in the UK food industry since Premier Foods’ £1.2 billion purchase of RHM in early 2007. Indeed, the combined Boparan Group/Northern Foods business will now rival Premier Foods as the UK’s largest domestic food processor.

From humble beginnings in 1993 as a small-scale retail frozen poultry cutting operation, Boparan has developed into a £2 billion-plus international business through a combination of organic growth and acquisitions. As part of its expansion strategy, 2 Sisters recently announced a £30 million investment in a state-of-the-art food factory in Thetford, due to open in Spring 2011, which will serve as a platform for growth for the company’s prepared foods division over the next decade.

Since the start of 2009, Boparan has acquired Storteboom Group, a £400 million turnover Netherlands-based poultry processing business; Five Star Fish, a leading £65 million turnover UK supplier of added-value, prepared fish to the food service sector; and famous seafood restaurant chain – Harry Ramsden’s.

While these three acquisitions were of businesses in some distress, Northern Foods is not in this category. Although in the process of restructuring, Northern Foods is a well invested business. Restructuring charges and a loss in its frozen foods operation, which offset improvements in chilled foods and bakery, resulted in Northern Foods reporting an operating loss of £9.5 million and a drop in turnover for the six months to October 2010.

Greencore’s Retreat

After its proposed all share merger of equals with Northern Foods was trumped by Boparan’s £342m cash offer, which implied a 52% higher value, Greencore did consider making an improved offer. Greencore worked with a partner in order to agree a simultaneous sale of certain of the Northern Foods branded businesses (Fox’s biscuits and Goodfella’s frozen pizzas).

This approach was intended to provide significant funding and allow Greencore to acquire only the parts of the Northern Foods business with the greatest synergy potential. Because of the highly complementary nature of Northern Food, Greencore had identified cost synergies of £40 million per annum from its original merger proposal.

The same level of synergies is not available to Boparan, which in the long-term is also expected to sell off the Fox’s and Goodfella’s branded operations.

However, the Greencore board decided that an improved offer could not be made on terms which would deliver sufficiently strong returns to its shareholders, and consequently withdrew earlier this month.

Although thwarted in its bid for Northern Foods but still convinced of the considerable strategic merits of consolidation in the UK convenience food sector, Greencore will seek further opportunities for mergers and acquisitions. Bakkavor and Uniq are potential targets as Greencore seeks a potential partner to significantly increase scale.

Indeed, Greencore and Bakkavor have been seen as merger partners in the past. In 2008, Bakkavor, the Icelandic food group which became one of the leading fresh prepared food processors in Britain after acquiring Geest for £580 million in 2005, built up an 11% stake in Greencore. However, following turmoil in global financial markets, especially in Iceland, and a plunge in Greencore’s share price, Bakkavor was forced sell its stake, incurring a loss of £58.5 million.

If Greencore does not act swiftly, it is in danger of becoming a takeover target.

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