Dublin-based convenience food manufacturer Greencore has agreed a deal to potentially buy rival Bakkavor, the company confirmed.
This is the third reported approach Greencore has made for Bakkavor, which is a leading player in the fresh prepared food market in the UK, supplying products such as M&S’s gastropub ready meals, meals under the Pinch brand for Tesco, and healthy snacking options for Sainsbury.
An initial approach was turned down by Bakkavor’s board on February 27th, with a second, revised offer of £1.1 billion (€1.3 billion) rebuffed on March 10th, as it “significantly undervalued the company and its future prospects”.
The deal, which will see each Bakkavor share swapped for 85 pence sterling plus 0.604 in Greencore shares, equates to a value of £2 per Bakkavor share and values the company at £1.2 billion.
This is a 32.5 per cent premium to Bakkavor’s share price of 151 pence per share on March 13th.
Bakkavor shareholders will also retain the right to the final dividend of 4.8 pence sterling for last year that was declared on March 4th, subject to approval at the upcoming AGM.
The deal must still be passed by regulators and will be subject to due diligence. But both boards have indicated they would recommend acceptance of the offer to their respective shareholders, subject to other conditions being met.
If the agreement goes through, the transaction will create a convenience food business with a combined revenue of £4 billion.
Greencore shareholders would own approximately 56 per cent of the enlarged entity, with Bakkavor shareholders owning 44 per cent.
There could be a further payout for shareholders if Bakkavor’s US business is sold off under certain conditions, specifically if a sale agreement is signed by June 30th, 2026, or if a sale completes within 12 months following the completion of the proposed offer.
That US business contributed around £228 million to revenue.
Should the deal be approved, Bakkavor directors Agust Gudmundsson and Lydur Gudmundsson will be proposed as non-executive directors of the merged group.
Bakkavor has revenue of £2.3 billion, with 85 per cent of that coming from the UK. It also has a growing presence in the US and China markets, and currently employs more than 17,000 people across 41 sites.
There will be expected cost efficiencies and savings from the acquisition.
“We estimate potential cost synergies of circa £50 million by FY28, driven by procurement leverage, standardisation, central cost reductions and operational efficiencies,” Davy analyst Gary Martin said in a note. “Management’s recent track record in cost optimisation underpins these assumptions.”
Analysts are also expecting low-double-digit percentage earnings per share accretion by the 2027 financial year. “We maintain that the proposed acquisition will deliver a beneficial outcome for shareholders.
London-listed Greencore said this week its full-year earnings are set to be better than expected amid robust sales and efforts to keep costs under control. New customer wins helped maintain strong revenue growth in its second quarter to March 28th, and profits lifted thanks to ongoing action to keep a tight rein on costs.
