Greencore is plotting a Northern Foods fightback

By Ruth Sunderland
Updated: 05:25 EDT, 24 January 2011

Shares in Northern Foods soared 15 per cent this morning after its management backed a £342m buy-out offer from the owner of the Harry Ramsden's fish restaurants.

Ranjit Singh Boparan's last-minute offer on Friday for the Goodfella's Pizza and Fox's biscuits manufacturer prompted its management to ditch a previous deal involving a merger with sandwich maker Greencore.

The Irish firm said it is considering its options and according to the Financial Times may return with a sweetened offer for Northern.

Northern's shares rose to 72.5p, broadly in line with Mr Boparan's offer price of 73p per share.

Mr Boparan wants to combine Northern with his other food businesses, including chicken producer 2 Sisters, to create a major player in the food industry with £2bn of annual sales.

Previously, Northern's management recommended that shareholders vote for the merger with Greencore they announced in November that would see the creation of a new company Essenta Foods. But now they are backing Mr Boparan's cash offer.

Northern's board had recommended a £236million all-share deal with Greencore but on Friday ditched their Irish suitor in favour of Boparan after he tabled a £342million cash offer.

Greencore is expected to issue a statement to the market this morning, saying it is considering its options.

The Greencore board is holding talks with its advisers, including Barclays Capital, and is understood to be looking at how it might improve its offer by including a cash component.

Any counter-bid will be launched within the next 28 days, the deadline for Boparan to put out a formal offer document to Northern's shareholders.

'It has become clear cash is a big motivating factor for Northern's investors,' said a source close to the discussions.

Boparan's intervention comes as a bitter blow to Greencore, which may itself become a takeover target if its hopes of salvaging the merger with Northern come to nothing.

Observers are sceptical as to whether the group - which had hoped to achieve £40m of synergies by teaming up with Northern to create a new group called Essenta - can pull a rabbit out of the hat at this stage. Boparan's offer values Northern at a near 90pc premium to its share price before the disclosure of the initial proposal to merge with Greencore.

However, questions remain about some aspects of the deal. Details of an agreement struck between the poultry baron and the trustees of Northern's pension fund have not been disclosed.

Greencore had agreed to pay £15million a year into the fund, which has 20,000 members and a deficit of £142million, and it is believed Boparan has pledged to contribute at least that amount.

Observers pointed out a takeover would be highly leveraged, with the tycoon taking on £220million of existing Northern debt as well as the £342million bid price and £142million of pension scheme red ink.

Northern's earnings are running at around £90million a year. It is understood the proposed takeover has not yet been cleared by the Pensions Regulator.

Boparan is part-funding the deal from resources within his own private business empire and has lined up a credit facility with Goldman Sachs to cover the remainder.

The amount being provided by the investment bank has not been revealed.

Boparan, who owns the Harry Ramsden's restaurant chain, wants to merge Northern into his 2 Sisters chicken processing business to create a food giant with £2billion of sales annually.

The business specialises in supplying raw and prepared chicken products. Brands include Buxted Original and The Devonshire Red.