Greencore shares slide as customer buys US sandwich maker

Tyson Foods became Greencore’s top customer last year in $747 million Peacock deal

Greencore chief executive Patrick Coveney. Greencore saw as much as £130 million (€152.4 million) knocked off its market valuation on Tuesday.

Greencore chief executive Patrick Coveney. Greencore saw as much as £130 million (€152.4 million) knocked off its market valuation on Tuesday.

 

Greencore saw as much as £130 million (€152.4 million) knocked off its market valuation on Tuesday as its biggest customer, Tyson Foods, agreed to buy an Ohio-based sandwich maker, igniting fears that the Irish convenience foods group may lose lucrative contracts.

Tyson Foods became Greencore’s biggest customer at the end of last year, replacing Marks & Spencer, under the Irish group’s $747 million (€683 million) acquisition of Illinois-based frozen breakfast sandwiches maker Peacock Foods, which has annual sales of $1 billion. The deal would quadruple Greencore’s revenues in the US.

“There is a concern that Tyson Foods might take some of the Peacock Foods business back in house at some stage in the future,” said a London-based analyst, who asked not to be identified. “It’s all very unclear at this stage. The best-case scenario is that Peacock might get extra contracts from Tyson following the takeover. The worst case would see Peacock lose contracts in time.”

Tyson Foods, the largest meat processor in the United States, revealed on Tuesday it plans to take over AdvancePierre Foods in a $4.2 billion deal, expanding its reach into the fast-growing area of “protein-packed brands”. Tyson said it expected the transaction would deliver about $200 million of annual cost synergies within three years, “created by a consolidated manufacturing footprint, procurement efficiencies” and other measures.

Long-term contracts

Market sources said that Greencore is currently cushioned by having long-term contracts with Tyson and that there had been engagement between both parties since the Peacock deal was completed in December on broadening the relationship. In addition, Tyson co-invested in 2013 in a Peacock facility.

However, shares in Greencore, led for the past nine years by chief executive Patrick Coveney, fell as much as 7.5 per cent in late trading in London, valuing the group at £1.6 billion, its lowest since late January. A spokesman for the company declined to comment.

AdvancePierre holds a market-leading position in the US market for breakfast sandwiches sold through the convenience channel, according to the company’s 2016 annual report. It is also the largest supplier of private-label breakfast sandwiches through the retail channel, it said.

“Private-label sales of retail frozen breakfast sandwiches is an underpenetrated market compared to the frozen food market and, therefore, we believe that area is poised for significant growth,” the company said in the report.

The deal comes less than a year after AdvancePierre floated on the New York Stock Exchange. Private-equity firm Oaktree Capital Management, which owns 42 per cent of the company’s outstanding shares, has already signed up to the accord.