Blackfriar: Merger sees another piece of Yorkshire heritage going

As Northern Foods revealed a merger with Ireland's Greencore to create a 1.7bn food group called Essenta Foods, all the signs appear to point to Greencore as the dominant partner.

The oddly-named Essenta will be domiciled in Dublin to escape the higher UK tax rate. For the first time in 130 years, Northern's headquarters will leave Yorkshire.

Its chief executive will be Greencore's boss, Patrick Coveney, who insisted the new company will be "a combination of best of both, but a genuine merger of equals".

Although the board will have an even mix of Northern and Greencore directors, with Tony Hobson its new chairman and Simon Herrick its finance director, it's clear which is the dominant player.

Cost cuts of 40m will arise from the deal – although only 15m of these will be overhead cuts.

The deal will cost 45m in exceptional costs, which will no doubt include some redundancy payouts.

While there was an air of inevitability about this deal, Blackfriar can't help but be disappointed that another piece of Yorkshire's heritage is disappearing.

Yorkshire's business scene is losing another powerful company and champion of the region.

A number of big Yorkshire businesses have paid a heavy price during the recession, with Halifax Bank of Scotland losing its independence, Bradford & Bingley being erased from the high street, credit lender Cattles winding down its operations and rail maintenance firm Jarvis falling into administration.

Blackfriar is by no means suggesting that Northern is in the same category as these businesses – but it is another Yorkshire company to lose its independence.

Shareholders – at least those who have invested in recent months – are winners, with both companies' shares surging by more than 24 per cent yesterday. Shareholders will likely wave it through.

But as Lord Haskins put it yesterday, long-term Northern shareholders are still sitting on hefty losses. The company had a market cap of about 1bn when he left in 2002; today it is only about a quarter of that.

"It's come down as much as it has over the last seven to eight years," said Labour peer and former chairman of 16 years.

"They look like two rather small companies leaning against each other hoping for the best."

In fairness to the two companies, they had to do something – growth had to come from somewhere.

As Northern's chief executive Stefan Barden recently told Blackfriar, being in the food industry is "a bit like being a shark – you have to keep swimming".

The food industry is not an easy place to operate, as big retailers use their clout and buying power to squeeze better deals from their suppliers.

Northern has played hardball with the retailers, notably mothballing its Fenland ready meals site when it couldn't agree a profitable contract with Marks & Spencer.

But shedding contracts and closing factories only results in lower revenues.

And in fairness to Northern, it is a very different world to the Lord Haskins days of old, when deals were sealed on a handshake alone.

The two companies have been talking about this deal for five years, said Mr Coveney, and decided the time was right.

Essenta will retain a significant presence in Yorkshire – some 5,000 staff employed at factories across the region.

Mr Coveney said "(heritage) plays a big part in my thinking" and it will have a "very significant operating centre in Yorkshire".

"The new business will remain in the north of England but we will have a small corporate office in Dublin," he added.

In total the business will have about 17,000 staff and 35 manufacturing sites.

"People looking at this industry and these players can see there's a compelling logic for putting these businesses together," said Mr Coveney.

The deal will give Essenta more firepower – a 450m debt facility – and take the best skills and talent from both businesses, he added.

"Should the new company emerge it will have over 30 facilities with a clear lead in the private label chilled cabinets in Britain," said Shore Capital. "Interestingly, neither company serves the same product to the same customer."

But when it comes to taking tough decisions at Essenta in future, Yorkshire will be a smaller voice.

As Mr Coveney put it, Essenta was chosen because it is a "neutral" name.

Blackfriar believes this deal is a marriage of convenience, from which Yorkshire may lose out.