Northern Foods enjoys strong trading as it waits for bid move

NORTHERN Foods said it traded well over Christmas despite the bad weather, as a deadline approaches for food tycoon Ranjit Boparan to bid for the Fox's biscuit-maker or walk away.

Leeds-based Northern, which hopes to merge with rival Greencore, said like-for-like sales lifted 2.3 per cent in its third quarter.

Good sales of ready meals, biscuits, sandwiches, soups and puddings in the 13 weeks to January 1 helped offset a dismal quarter by its frozen division, where Goodfella's pizza has lost market share.

West Midlands chicken tycoon Mr Boparan has a week remaining to make an offer for Northern, or walk away for six months.

Northern's acting chief executive Simon Herrick yesterday said while the board is duty-bound to consider a bid if it materialises, the merger is currently "the only deal on the table".

In November, the manufacturers revealed plans to create Essenta Foods, a 1.7bn turnover group employing about 5,000 staff in Yorkshire. Mr Herrick would be finance director of the business and Greencore's Patrick Coveney would become chief executive.

The merger was thrown into turmoil when interest from Mr Boparan, the owner of fish and chip chain Harry Ramsden's, emerged just before Christmas.

Mr Herrick said yesterday: "We're a UK plc so... we are for sale. If an offer came in we'd have to consider it but price is going to be key.

"(But) there's only one deal on the table which we believe for us is a very, very positive deal. It's a merger of equals; it's a compelling opportunity and it provides certainty for both companies."

The all-share merger is forecast to create synergies of 40m, and will not require extra debt funding. Northern has also agreed a deal with the trustees of its pension scheme to inject 15m annually.

Mr Herrick said the pension deal, which analysts have flagged as a big obstacle to Mr Boparan successfully bidding for Northern, will cost less than expected because of the stability and scale Essenta will create.

"15m is a great success but it's entirely conditional on the merger going ahead," he said, adding time is of the essence as the pension scheme has a triennial valuation starting in March.

Northern has opened its books to Mr Boparan and is waiting to see if the food tycoon, whose 1bn turnover 2 Sisters Food Group is Tesco's biggest chicken supplier, makes a bid.

"We have cooperated with him and we've been as helpful as we can be," said Mr Herrick. "It's been fairly amicable and it's been quite straightforward. He's a successful man, a bright man and an astute man. He will make his own mind up."

Mr Herrick added any bid must offer a premium to the merger value – which rates Northern shares at around 50p.

Northern's shares dipped just 0.4 per cent yesterday to 61.75p as the market continued to factor in Mr Boparan's interest. Shore Capital analyst Clive Black believes the poultry magnate will need to pay up to 75p to 80p – 351 to 375m – to win the food manufacturer.

Panmure analyst Damian McNeela said: "We see overcoming the issues surrounding the current pension deficit of 107.8m as being a major hurdle, and regard a successful takeover by Boparan Holdings as unlikely."

Mr Boparan has yet to talk to Northern's pension trustees, according to analysts.

Shareholders of both companies vote on the merger on January 31.

Mr Herrick said Christmas trading was a "good performance overall and achieved in a market which has been challenging and with weather conditions which were pretty severe".

Chilled sales – roughly half of the company's turnover – grew 9.7 per cent on a like-for-like basis thanks to good ready meals sales. Bakery turnover was up five per cent as biscuits and puddings performed well.

Northern has tasked its Fox's management team with turning around its frozen division, after its sales sank 17.2 per cent from poor Goodfella's pizza trading and lower-than-expected pie sales.

"This is not about sending in the commandos for a quick fix and one-gun battle and it's all over," said Mr Herrick. "This is a full-blown war. This is 12 to 18 months of hard work to re-establish the (Goodfella's) brand."

The group is currently forecasting commodity inflation of four to six per cent this year, with pressure from high cocoa and wheat prices. "We think we are well-positioned for the next year relative to other people in the market," said Mr Herrick. "It's going to be an extremely tough year; inflation is going to pick up."

Panmure cut its operating profits forecast by 2m to 52.9m this year due to Goodfella's poor performance.

Countdown to a new era

November 17 – Northern Foods unveils 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 Boparan confirms mulling possible cash offer.

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

January 21 – Boparan's deadline to make bid or walk away.