Greencore share buy-back meets with poor response

Greencore's long-awaited share buy-back has proved to be something of a damp squib, with shareholders selling less than half the 10 million shares that Greencore had offered to repurchase. The 4.9 million shares bought back cost Greencore £18.6 million and the outcome of the buy-back has had a negligible impact on the food group's exceptionally comfortable balance sheet.

But there were ominous tones emerging from the London market about the prospects of Harrison & Crosfeld reaching agreement with Greencore on the sale of H&C's Paul's Malt subsidiary. Greencore is understood to be the highest bidder for Paul's Malt with a bid of around £50 million but its bid is still far short of the £70 million valuation that H&C is thought to have put on its malting business.

Harrison & Crosfeld has declined to comment on the sale of Paul's Malt, but market sources have indicated that the failure to find a buyer willing to pay anything near its asking price may mean that H&C will take Paul's off the market and retain it until its profits recover and make it more saleable.

H&C is thought to believe that a fall in the value of sterling later this year will result in a sharp improvement in Pauls' profits which were just £5 million on sales of £100 million last year. If this does end up being the case, it will be a severe blow to Greencore's plans to become a major player in the malting industry.

Greencore finance director, Mr Kevin O'Sullivan would not comment on the Paul's bid, but sources close to the company said: "It's all a matter of value. Greencore has requirements for the return on equity from any acquisition and does not believe that it should pay any seller for the synergies that Greencore itself will bring to the business." Greencore had shareholder clearance to buy back 10 per cent of its shares but opted to confine the buy-back offer to 5 per cent - 10 million shares at 380p each. Market sources said that there was little appetite among major institutional investors for the buyback, with many feeling that the 380p price was too low. Greencore traded above the buy-back price throughout the day yesterday, peaking at 390p before closing up 8p on the day on 388p.

The £18.6 million that Greencore will pay for the 4.9 million shares will have little impact on its balance sheet. Greencore has one of the most comfortable balance sheets of any Irish industrial company with net debt of only £17 million at the end of September 1997, a gearing of only 6.6 per cent.

Greencore sources said that, after the buy-back, the group is still capable of making acquisitions of up to £150 million; the problem will be finding acquisitions if the Paul's bid falls through. Shareholders will no doubt be looking for some guidance at next week's annual general meeting.