Boparan Holdings, which is controlled by food business entrepreneur Ranjit Singh Boparan, has made a 73p a share offer for UK convenience food group Northern Foods. Boparan already owns a 6.6% stake in Northern Foods.

The £342m bid was made following the granting of a two hours extension to the deadline given by the UK Takeover Panel and scuppers a proposed all-share merger of equals between Northern Foods and Greencore Group, another leading convenience food company in the UK.

The board of Northern Foods is recommending the Boparan offer and has withdrawn its support for the Greencore merger. Accordingly the Northern Foods directors are recommending that Northern Foods shareholders vote against the Greencore merger at the meetings on the 31st January 2011.

The proposed merger between Northern Foods and Greencore would have created Essenta Foods, a £1.7b turnover business with strong positions in private label production along with significant band strength in biscuits and frozen pizzas, respectively through the Fox’s and Goodfella’s brands. Essenta Foods would be owned equally by Northern Foods’ and Greencore’s shareholders. Integrating the two businesses was expected to yield cost synergies of £40m per annum within three years, with at least half being realised within the first 12 months after completion.

The Essenta deal had also proposed putting £15m a year into Northern Foods’ pension fund to plug a deficit of £142m. Boparan has also met with Northern Foods’ pension trustees and agreed terms.

The Boparan offer price of 73p a share represents a 61% premium to Northern Foods’ share price before the merger agreement with Greencore and is 52% higher than the implied value of Northern Foods under the Greencore merger proposal.

“The combined group will be one of Britain’s major food suppliers with a turnover of more than £2 billion. This will create significant opportunities which will benefit customers, consumers and employees. We look forward to working with the experienced Northern Foods team and combining our skills in product innovation and customer partnerships to create a larger business with enhanced prospects,” says Ranjit Singh Boparan.

Commenting on the offer, Anthony Hobson, chairman of Northern Foods, says: “This attractive cash offer provides shareholders with an immediate premium to the value of Northern Foods within Essenta Foods, the proposed merger with Greencore we announced in November 2010. The bid from Boparan is a compelling opportunity for our shareholders to realise a cash exit, and as such the board of Northern Foods will be unanimously recommending that Northern Foods shareholders accept Boparan’s offer.”

Ranjit Sing Boparan is chief executive of chicken processor the 2 Sisters Food Group, which he established in 1993, developing the company from a small scale frozen retail cutting operation into a £700m turnover international food business with ten manufacturing sites in the UK, six in Holland and one in Poland.

Northern Foods and Greencore, two of the UK’s leading convenience food processors, are to merge to create Essenta Foods, a £1.7b turnover business with strong positions in private label production along with significant band strength in biscuits and frozen pizzas, respectively through the Fox’s and Goodfella’s brands. The merger is expected to yield cost synergies of £40m per annum within three years, with at least half being realised within the first 12 months after completion. The merger is scheduled to be completed during the second quarter of 2011.

Essenta Foods will be owned equally by Northern Foods’ and Greencore’s shareholders. The combined business will have a high quality asset base with 33 facilities in the UK, eight facilities in Ireland and two facilities in the US.

It will benefit from strong market positions in growing segments of the market such as sandwiches and ready meals, which in the UK have experienced 9.8% and 7.7% market growth respectively in the last year. Greencore and Northern Foods have invested significantly in their respective businesses in recent years and consequently the combined group will have sufficient capacity to support further market growth in these and other segments of the market.

“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,” says Anthony Hobson, chairman of Northern Foods.

Patrick Coveney, chief executive of Greencore.

Patrick Coveney, chief executive of Greencore, who will head the merged group, comments: “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 investment case is underpinned by tangible cost synergies and the platform for further growth in the UK, Ireland and the US. 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.”

Northern Foods recently reported an operating loss of £9.5m including restructuring charges and a drop in turnover for the six months to October 2nd 2010 as improvements in its chilled foods and bakery businesses were offset by a loss in frozen foods. Although like-for-like sales grew 2.7% in the first half, and by 6% in the second quarter, total sales were £453.0m against £466.9m in the corresponding period in the previous year. Operating profit (pre-restructuring) was £17.5m (down from £20.5m in the previous year), reflecting chilled food profits up from £7.2m to £11.8m, bakery profits up from £8.2m to £10.3m but the frozen foods recording a loss of £4.6m, against a profit of £5.1m in the first half of 2009/2010.