Northern bid war looms as Greencore looks at sweetener

Northern abandoned its plan to merge with rival Greencore to create Essenta Foods late on Friday, after a rollercoaster day which saw the Takeover Panel extend Mr Boparan's bid deadline by two hours to 7pm.

Analysts said Greencore could return with cash to supplement its equity offer, raising the possibility of a bidding war for the maker of Goodfella's pizza and Fox's biscuits.

Shares in Northern leapt 17.5 per cent yesterday to 74p, above Mr Boparan's 73p per share offer for the Leeds-based food group, as the market factored in a competing bid.

The poultry magnate's bid trumped the all-share merger to win the backing of Northern's board. But Greencore was last night standing by the Essenta deal and "considering its options".

Shares in Greencore, the biggest supplier of sandwiches to UK supermarkets, closed down 5.8 per cent yesterday at 1.14 euros.

"The board of Greencore will now consider its options. As part of this process it intends to seek the views of both Greencore and Northern shareholders," said Greencore in a statement.

The Dublin-based group said it understood the value placed on Mr Boparan's cash offer by Northern's board. But Greencore said it continues to believe the Essenta merger represents a "compelling opportunity for value creation for both Greencore and Northern Foods shareholders".

Essenta had been heralded by both companies' boards as the chance to create a 1.7bn food giant supplying most of UK's supermarkets with products ranging from ready meals to sandwiches.

Northern's chairman Tony Hobson and finance director Simon Herrick had been due to join the Essenta board in the same roles, but now face the bizarre position of urging shareholders to vote against the merger despite having helped conceive it.

Greencore yesterday said the proposed 40m savings from the merger could in fact be greater.

It also gave more detail on the savings, which include closing Northern's head office. Achieving the synergies will cost 45m, but Greencore said there are unquantified operational savings to be gained.

It argued the Essenta deal would create "a business with increased scale in the industry and the ability to deliver substantial synergies around which the board has increased confidence". It declined to comment on a sweetened bid.

Mr Boparan, who has built his West Midlands-based 2 Sisters Food Group into a 1bn turnover business, plans to combine with Northern to create a food giant. It would have turnover of 2bn and employ about 15,000 staff.

The precise funding details of Mr Boparan's offer remain unclear, but it will use internal funds, intra-group debt and a loan from Goldman Sachs. The entrepreneur also secured the backing of Northern's pension trustees, although the value of any settlement is also unclear. He now has until February 18 to write to Northern shareholders with his offer.

Analysts said Greencore could yet return with cash to turn momentum back in favour of Essenta.

They added as Mr Boparan's offer does not include a commitment to pay Northern's final dividend, forecast to be 3p per share, Greencore is effectively competing with a 70p offer.

The Essenta deal had been worth about 50p per Northern share.

"Greencore are down but not out," said Warren Ackerman at Evolution Securities. "(Greencore are) giving a strong hint they will return to the table with an improved offer.

"A revised bid would need to add a cash kicker to the existing merger terms. They could also adjust the merger terms to provide Northern's shareholders a higher proportion of equity in Essenta and raise cost synergy targets."

Shore Capital analyst Clive Black said Mr Boparan may be at the limits of what he can afford.

"We do question if this is Boparan's maximum offer capability for Northern Foods; that there is no more resource in the tank?" he said. "Northern's shareholders should wait and see what, if anything, Greencore proposes before accepting the Boparan offer."

But Panmure analyst Damian McNeela said: "Although Greencore is likely to consider sweetening the terms of the merger, we would still expect an all-cash offer to be preferable to shareholders."

How the story unfolded

November 17 – Northern Foods unveils 1.7bn merger with Greencore to create Essenta Foods, with Patrick Coveney as chief executive and Simon Herrick as finance director.

November 23 – Northern chief executive Stefan Barden quits early to join food wholesaler Brakes in new year.

December 22 – Food tycoon Ranjit Singh Boparan confirms mulling cash offer for Northern.

January 4 – Takeover Panel issues Mr Boparan "put up or shut up" ultimatum.

January 21 – Mr Boparan submits last-minute 73p per share, 342m offer for Northern, winning its backing.

January 24 – Greencore says it still believes in Essenta deal and is "considering options".