Irish food company Greencore will pursue its merger with Northern Foods despite the readymade meal producer opting for an all-cash deal with poultry baron Ranjit Singh Boparan.
Northern Foods, the owner of Goodfella's pizzas and Fox's biscuits, agreed an all-cash sale on Friday night to Boparan, a West Midlands-based chicken tycoon supplying processed poultry and readymeals to supermarkets, at 73p-a-share, or £342m.
This trumped an earlier all-share "merger-of-equals' with Greencore, which had been agreed but not completed and which gave Northern Foods a much lower implied value of 48.2p-a-share.
Many analysts had expected Greencore to walk away over the weekend, since Boparan's offer was 54% higher than the Irish bid and was all cash. However, in a stock market statement Greencore showed no intention of quitting as it kicked off a campaign to woo Northern Foods shareholders.
"Greencore continues to believe that a combination with Northern Foods represents a compelling opportunity for value creation for Greencore and Northern Foods shareholders, through the formation of a business with increased scale in the industry and the ability to deliver substantial synergies," it said in a statement.
That merger would have created an industry leader in chilled foods and sandwiches with total sales of £1.7bn, in a deal presenting far greater scope for cost-cutting than the sale to Boparan because of the greater similarity, or overlap, between their businesses. The merger of Northern Foods and Greencore would have enabled the combined group to cut an estimated £40m from its annual costs.
According to one Northern Foods insider shareholders are faced with "taking the jam today or the upside tomorrow", in deciding whether to sell their shares to Boparan for a hefty and guaranteed premium, or holding onto their stock in the hope a tie-up with Greencore could bring an even bigger payday in the future.
Mindful of the lack of any money in its defunct merger agreement, Greencore said in its statement that "the board recognises the importance attached by the Northern Foods board to the certainty of cash value in their decision to change their recommendation".
Greencore will now sound out investors in both companies, in the hope of persuading them to consider a revised tie-up thought to revolve around a sweetened deal involving an additional cash component. "A further announcement will be made in due course," the statement added.
However, analysts said the value of the offer from Boparan, who has amassed a 6.6% stake in Northern Foods and last year acquired the Harry Ramsdens chain of fish and chip eateries, left Greencore with an uphill task.
Damian McNeela, at Panmure Gordon, said: "Although Greencore is likely to consider sweetening the terms of the merger, we would still expect an all-cash offer to be preferable to shareholders."
Analysts at Exane BNP Paribas added, in a note, that "the prospect of cash over synergies is not likely to leave many with a dilemma".