Greencore bit off more than it could chew in the US

Irish food firm exiting US market just two years after buying Peacock Foods for $748m

Greencore chief executive Patrick Coveney. Photograph: Dara Mac Dónaill

Greencore chief executive Patrick Coveney. Photograph: Dara Mac Dónaill

 

Stockbroker Davy described it as a “value accretive back step” but Greencore’s surprise decision to sell its US assets marks another retreat from the American market.

The difference this time around is that it is coming out slightly ahead in financial terms, unlike its disastrous foray into the US sugar market in the 1990s that cost the company about €40 million.

Greencore re-entered the US in 2008, buying a business in Boston that had annualised sales of $150 million. This unit was built out through bolt-on acquisitions but the it failed to gain any momentum and was always sub-scale.

In November 2016, Coveney announced a transformational $748 million cash acquisition of Illinois-based Peacock Foods.

This provided a fourfold increase in manufacturing capacity, gave it a diversified customer base and meant the US would account for more than 40 per cent of the overall business, which at the time was built around its successful sandwich operation in the UK.

In March Greencore issued a profit warning as a result of major problems in the US.The share price tumbled 30 per cent and Coveney overhauled the American leadership team, promising to spend at least half his time in the US to fix the issues.

Greencore will use a large part of the £802 million net proceeds to pay a special dividend of 72p per share, which at least compensates shareholders for the Peacock-led rights issue two years ago.

In November 2016, when the Peacock deal was announced, Coveney said it would “transform” its US business, “strengthen our position in high growth categories, broaden our channel and customer exposure and add significant scale to our operations”.

Barely two years on the sale represents a “compelling and immediate realisation of value for Greencore’s shareholders”.

Greencore’s acquisition strategy in the US over the past decade was Coveney’s big long-term strategy play, designed to give it a major growth impetus that it could never achieve in its mature UK sandwich business.

Shareholders can be grateful that he managed a dignified exit from the market but they might also be pondering if, after 10½ years at the helm, Coveney remains the best person to lead it into the future.

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