Tycoon could make a £300m hostile bid for Northern Foods

READY meals group Northern Foods has received an approach from a top 10 shareholder, food tycoon Ranjit Boparan, which would scupper its £1.7bn merger with Irish food company Greencore.

There is speculation that Mr Boparan is planning a 300m hostile bid for Leeds-based Northern.

Northern insisted yesterday that its merger with Greencore offers "substantial benefits for shareholders, customers and employees".

Northern has agreed an all-share merger with Greencore, the UK's biggest sandwich maker. Northern, best known for its Goodfella's pizzas and Fox's biscuits, said Mr Boparan had requested access to its books last Friday.

Yesterday Boparan Holdings said it is at a preliminary stage in evaluating a possible cash offer for Northern and has requested information under Rule 20.2 of the Takeover Code.

It added that there can be no certainty at this stage as to whether this will result in an offer being made.

Northern said it has not received an offer and analysts played down the likelihood of a hostile bid succeeding. They believe that the Greencore/Northern merger's 40m annual cost cuts will prove too attractive.

In addition Northern's 142m pension deficit could prove a major stumbling block. At the moment Northern has to put 25m to 30m a year into the scheme, but if the merger goes ahead Northern will only have to put in 15m a year following a complex arrangement with the trustees.

If a bid were to prove successful, Mr Boparan would have to go back to pension trustees to renegotiate annual funding payments, which could also be far higher than those agreed under the Greencore proposal.

But Northern's shares rose four per cent last night to close up 2.5p at 65p as investors piled in, in the hope of a better offer.

Mr Boparan, one of Tesco's biggest chicken suppliers and owner of the fish and chip shop chain Harry Ramsden's and FishWorks chains, is going through Northern's financials after asking for access in a letter on December 17.

Northern said he had not yet revealed his intentions or indicated any potential offer price.

The merger deal with Greencore would create a new firm with combined annual sales of 1.7bn.

Mr Boparan has been building up his stake in Northern since the Greencore merger was announced in mid-November.

He had a stake of less than three per cent before the deal first came to light, but he has since been buying more shares to give him a total stake of 6.6 per cent, making him a top 10 shareholder.

The entrepreneur now has access to the same financial information offered to Greencore, as is allowed under City takeover rules.

Northern and Greencore both maintained confidence in their proposed merger yesterday.

Shareholders of both firms are due to vote on the deal on January 31.

Davy Stockbrokers analyst Cathal Kenny said: "Reports speculate that Boparan may put together a deal valuing the company at around 300m. This would equate to 65p per share".

The agreed all-paper Greencore deal would see it pay 0.4479 new shares per Northern Foods share, valuing the enlarged group at about 450m.

Exane BNP Paribas analyst James Bushnell said issues surrounding Northern Foods' pension deficit, and a key part of the merger structure with Greencore, could scupper Boparan's move.

"It is clear that there are a couple of things that they would need to sort out," said Mr Bushnell. "The biggest one would be the pension deficit. There have obviously been agreements in the original deal with Greencore with Northern's pension trustees so they would need to have a similar agreement to make any counterbid."

A source close to the deal said Boparan might not be able to match synergies a Greencore/Northern Foods tie-up could achieve.

"Another party would also have to renegotiate complicated issues around Northern Foods' pension deficit and payments due to be made to cut it, which would be very difficult," he said.

If the Northern/Greencore merger goes ahead, Yorkshire will lose another historic name as the new 1.7bn group will be called Essenta Foods.

The new business will be based in Dublin to cut tax, but Northern said it would retain a "significant presence" in Yorkshire.

Essenta's new management said it will be a "merger of equals" but industry sources believe Greencore will be the "lead player".

Synergies of 40m are expected from the deal but analysts do not expect the group to close factories as there is little overlap in manufacturing.

A growing empire

Mr Boparan made his name through chicken processor Two Sisters Food Group, but has expanded his empire through acquisition in recent years, snapping up fish and chip group Harry Ramsden's in January after buying the FishWorks restaurant and fishmonger chain out of administration a year earlier.

He is one of the UK's most successful self-made millionaires and is worth around 130m.

The Two Sisters Food Group, which owns the Buxted poultry brand, also supplies own-brand chickens to supermarkets.