FDBusiness.com

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.