LONDON (ShareCast) - (Sharecast News) - Convenience food maker Greencore said it had reached agreement in principle to take over rival Bakkavor in a deal worth £1.2bn after two previous approaches were rejected- sending shares in the Icelandic company surging.
The deal would create a company supplying supermarkets with burgers, sushi, pizza, sandwiches and ready meals with a combined turnover of £4bn.

Greencore on Wednesday said the board of Bakkavor had indicated the key financial terms "represent a value that it would be minded unanimously to recommend" to its shareholders if a formal offer was made.

Bakkavor shareholders would be entitled to receive 85p in cash and 0.604 Greencore shares along with the Bakkavor 2024 final dividend of 4.8p a share. Greencore shareholders would own approximately 56% and Bakkavor investors 44% of the combined group.

The offer represents a 32.5% premium to the closing price on March 13 when the initial possible offer became public.

Greencore on Tuesday said full-year earnings would be better than expected due to robust sales and cost control measures. New customer wins helped maintain strong revenue growth in its second quarter to March 28.

"After a song and dance around valuation, it looks like Greencore has finally hit upon the magic number to gobble up Bakkavor. While still subject to a firm offer and shareholder vote, the tone of the latest update implies that Bakkavor is now on board to combine forces with the sandwich maker," said AJ Bell investment director Russ Mould.

"There is strategic merit in parking the two companies together. They are big names in the UK food market...Greencore wants a bigger slice of the pie and devouring Bakkavor would take the business to the next level."

"It would represent quite a turnaround for Greencore which was derailed by the pandemic. More people being called back to the office has been great news for its sandwich sales. Greencore has sustained positive momentum by doing more work for existing clients and winning new ones."

Reporting by Frank Prenesti for Sharecast.com

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