Blackfriar: Can Greencore rise off the canvas after rival's body blow?

Rewind to a week before Christmas: Northern and Greencore was the big story in the food industry. Here were two ambitious but hamstrung food producers joining forces to create strength, scale and synergies. The venture was christened Essenta Foods, signifying essence, vitality and new beginnings.

It would be a combination of best of both, taking the cream of the two companies' boards to finally create a 1.7bn chilled foods giant with the clout to tackle the supermarkets.

But that vision was all-but shattered when chicken tycoon Ranjit Singh Boparan gatecrashed the party on December 22 and threw cash on the table.

He finally submitted a stonking 342m 73p-a-share cash bid late on Friday, earning a recommendation from Northern's board.

Mr Boparan, a self-made entrepreneur who counts the big supermarkets among his customers, had been stalking Northern for three years before the Essenta deal forced his hand.

Food industry insiders know him as a formidable businessman, who has grown his 2 Sister Food Group into a 1bn turnover group through canny deals and hard bargaining.

Greencore was left out in the cold with Northern's U-turn, and forced to limp back to investors to try to conjure up a counterbid.

It insists it's not finished yet, but in these tough times, cash is king. Greencore would need to add about 30p in cash to bring its bid in line.

Blackfriar struggles to see how the food producer will raise that much cash. With its market capitalisation at just 202m, a rights issue would also be hard to get away. The Essenta deal was always hailed as a debt-free deal, so saddling the merged companies with a tonne of new debt would be a retrograde step.

Mr Boparan's offer is far from perfect and will also leave Northern with a hefty – but unspecified – debt burden. Questions also remain over how successful the poultry producer will be at making good margins on ready meals. Even so, Blackfriar can see the lure of cash winning over shareholders.

Greencore is down but not out. But it will require a superhuman effort, plus a hefty slug of cash, to resurrect Essenta.

n The news that Premier Foods' is to sell veggie brand Quorn, produced in Stokesley, North Yorkshire, was expected since news of interest first surfaced three months ago.

But whether it is the right decision for Premier is another matter.

The company is having to pay the price of its over-ambitious expansion plans by selling off Quorn and veggie sausage range Cauldron for 205m.

The two businesses have huge potential in the future, both in the UK and abroad, where meat alternative markets are less developed.

In the UK, people are tightening their belts this year amid VAT hikes, job loss fears and public sector spending cuts, but supermarkets report that one of the few growth areas is healthy eating ranges.

Premier is selling Quorn just as it successfully starts to move beyond the vegetarian market and break into the healthy eating arena. In the words of one analyst, they are selling the family silver.

Shore Capital analyst Darren Shirley said: "It (the sale) is positive in that it reduces the debt, but you could argue that Quorn and meat-free was one of the growth areas of the business and that they're having to sell the family silver."

The first Quorn product was launched in 1985 using a specially developed protein-based ingredient called mycoprotein. It has since become a popular meat substitute for vegetarians with a wide range of products including mince, burgers, sausages, escalopes, cottage pies, lasagne and picnic eggs. The brand is showing huge growth and in the year to December 31, the meat-free division made revenues of 128.8m and a trading profit of 16.2m.

The good news for Stokesley and Quorn is that new owners Exponent Private Equity and Intermediate Capital Group have pledged to invest in the businesses and said there will be no impact on factory jobs.

Chris Graham, founding partner at Exponent, said: "We are pleased to be acquiring Quorn and Cauldron which are strong and robust brands with a loyal customer base. With additional investment both in the UK and internationally we believe we can grow the business further."