Greencore buys British food rival for €128.5m

GREENCORE IS to buy British sandwich-maker Uniq for £113 million (€128.5 million).

The Irish group is to fund the acquisition of its British rival through a fully underwritten five-for-six rights issue at 46 cent per share, which will raise just over €80 million. The remainder will be financed through a Bank of Ireland debt facility.

The 96-cent-per-share offer represents a 62.7 per cent premium to Uniq’s share price on April 1st when the proposed sale of the company was announced.

Speaking to The Irish Times,Greencore chief executive Patrick Coveney said the "price paid was necessary to execute the transaction". He said the company is confident that the returns generated will justify the price, adding that the bidding process was competitive.

Greencore’s share price shed more than 9 per cent yesterday in Dublin, though on low volumes. The rights issue will result in the dilution of share value for existing shareholders.

The company, whose shareholding is 90 per cent held by institutional investors, has already secured the backing of 37 per cent of its shareholders for the deal and rights issue.

Greencore will most likely delist from the Iseq index as it moves its primary listing to London. It will also report in sterling.

Uniq, which is one of the biggest players in the convenience foods and dessert business in the UK, was put on the market in April after the company’s pension fund trustees took control of 90 per cent of the company by way of an unusual equity-for-debt swap, in a bid to deal with the company’s £400 million-plus pension deficit.

The transaction will strengthen Greencore’s position in the convenience food market in the UK where Uniq is a major convenience food supplier. In particular, Greencore highlighted Uniq’s contract with Marks Spencer as one of the key benefits of the deal. MS accounts for less than 1 per cent of Greencore’s sales currently.

Uniq’s desserts business, which represents about half of the company’s turnover, has been more problematic, however, and the company had recently initiated a restructuring of the division.

Patrick Coveney said yesterday that Greencore was fully briefed on the status of the restructuring plan and supported the current strategy, which was to focus on fewer customers and products.

Greencore said yesterday that the acquisition should lead to more than £10 million in cost-saving synergies. Of this, €5 million will come from the decision to move the listing to the UK, due to the elimination of duplicated corporate, divisional and functional overheads. Another €5 million will be saved by eliminating purchasing and supply chain overlap.

The acquisition should deliver mid-single digit adjusted earnings per share accretion for the 2012 financial year, the company said, also leading to increased earnings in following years.

In a trading update yesterday, Greencore said convenience foods revenues increased 9 per cent in the three months to July 1st, though it noted the difficult trading conditions in the UK. It expects the market to remain volatile through the remainder of 2011.