Management at Greencore decide against a buyout

Management at Greencore, the sugar and agri-business group, has ruled out making a bid for the €570 million (£450 million) group after conducting a preliminary examination.

A management buy-out had been seriously considered in recent months.

The idea has now been shelved for the time being, according to the sources. It is understood that Mr David Dilger, the chief executive and the other senior management did not believe a venture capital-backed management bid would return sufficient value to shareholders to be justifiable. Greencore shares have fallen steadily since they reached a high of 579p in 1998 and Mr Dilger and his colleagues are under pressure to reverse the decline.

Despite a number of acquisitions and steady increases in both profits and cash flow, the company has failed to attract much interest from investors, with the notable exception of Mr Dermot Desmond, who has built a 13.85 per cent stake in the group. Last May the group reported profits of €32.5 million on a turnover of €420 million for the six months to March. The results were pretty much unchanged on the previous year and turnover fell. Greencore would appear to be an attractive candidate for a management buy-out. Its shares are currently trading on a forecast price-to-earnings ratio of 8.1 for the full year.

This is below the average forecast for its European peers of 11.6 and substantially behind the higher ratings enjoyed by some of its peers such as Danisco of Denmark which has a prospective PE ratio of 14.3 for the full year.

Sources close to the prospective buyout confirmed yesterday that an exercise was carried out earlier this year on the feasibility of trying to find a financial buyer for the group, which would effectively have meant a bid by management.

It is understood Mr Dilger and the other senior management concluded a buyout with the backing of venture capitalists would not return sufficient value to the shareholders.

Given the company's strong cashflow of almost £100 million a year Greencore's management would have little trouble finding backers for the deal, but the institutions putting up the money would have wanted a significant return on their investment.

In the last year Mr Dilger and his colleague have been criticised by a "ginger group" of sugar beet farmers who are also shareholders. The group, called Greenshare, are led by Mr Joe Rea, a former president of Irish Farmers Association.

Greencore has failed to make a significant acquisition this year despite being linked with a number of companies, most recently Hazlewood, the UK foods group. Greencore, formerly the State-owned Irish Sugar, controls the Republic's quota for the production of sugar from sugar beet. Although the Government no longer has a shareholding in the group it still holds an effective "golden share" via the quota.

Any change of ownership would require the support of the Government which insists that the Irish sugar quota is always manufactured in the State.