Greencore calls off takeover approach to Perkins Foods

Fundamental differences with the management of Perkins Foods has led foods group Greencore to pull out of its takeover talks with the British frozen and chilled foods group. Greencore had made an indicative offer of around £190 million sterling (€300 million), but the discussions had never progressed to the stage of a formal offer.

Both companies were maintaining a strict silence on the collapsed takeover discussions, but sources close to Greencore said that it was not a question of price but of the future direction of Perkins that led to the end of the discussions.

The sources also denied that Greencore had ever lowered its indicative offer for Perkins when it heard that a management buyout group had come in with an offer of 140p sterling and added that Greencore had never altered its "indicative offer" of 145-150p sterling a share.

It is understood that, after its initial approach and indicative offer, Greencore got down to due diligence on Perkins, and this led the Irish group to the belief that Perkins's frozen foods business, which accounts for about half of total revenues, should be sold off because of its low growth prospects, with the proceeds reinvested in the higher-growth chilled foods business.

"Growth in the frozen side of the business was zero to very low, and Greencore's strategy is to target its investment at the higher-margins consumer foods sector." But while Perkins chairman, Mr Michael Davies, is thought to have favoured the Greencore approach, the other board members and, crucially, the Perkins senior management were not prepared to back a proposal which involved selling off the frozen foods business. At this stage, Greencore walked away.

Reaction in the Irish market to the collapse of the takeover talks was muted. Some felt that it is a positive sign that Greencore was prepared to walk away from a deal to which unacceptable conditions had been attached. Others felt that is now back to square one for Greencore in the search for a sizeable acquisition in the consumer foods business.

With a 1999 gearing of less than 56 per cent, interest covered more than seven times by operating profits and massive cash flow being generated by its Irish sugar business, Greencore has the financial wherewithal to make substantial acquisitions. The market will be hoping - and expecting - substantial moves in this area during the current year.