Company and Minister have reasons to reach a compromise, writes John McManus, Business Editor.

Time is not on the side of the Greencore board. Chief executive David Dilger and his colleagues have two weeks in which to decide how to respond to the Minister for Agriculture's proposals, which were published on Wednesday, for the division of a €145 million sugar industry compensation package.

The company has not sought to hide its disappointment at Minister Mary Coughlan's decision to allocate some €47.1 million of the €145 million available from the European Union to sugar beet growers and contractors, rather than Greencore.

The company called the decision "flawed and contrary to the purpose" of the scheme, which is part of a package of measures aimed at reforming Europe's heavily subsidised sugar industry.

But, when the dust has settled, Greencore will have a hard decision to make. Will it fight the Government or roll with it?

Right now, the company is clearly angry and there is much talk of legal action. And there certainly seems to be a reasonable basis for Greencore to challenge the decision.

The company position is that the €145 million EU funded scheme is aimed at compensating businesses and individuals affected by the ending of sugar processing, ie Greencore and a small number of hauliers and contract sugar beet harvesters.

A separate €123 million scheme exists to compensate those affected by the decision to end subsidies for sugar beet growing, ie the farmers.

The decision by the Government to allocate some of the processing money to farmers is thus flawed, argues Greencore.

There is also some uncertainty about the Minister's power to dictate where the money goes.

Strictly speaking, it is up to Greencore, as part of a scheme to renounce the Irish sugar quota and cease production which must be presented to the Government for approval at the end of the month, to propose how the money is to be spent.

The Government then has two months to approve it and send it on the Brussels. If accepted, the compensation payments will start to flow next year.

The Government "decision" this week is, it can be argued, nothing more than its opinion, which it is entitled to express under the guidelines of the scheme. Of course it carries far more weight than that, as the Government is unlikely to approve any scheme put forward by Greencore that does not follow its prescription. But the option remains open to Greencore to call the Government's bluff.

Such a course of action is unlikely to go anywhere very fast and undoubtedly will become bogged down for years in the Irish and European legal systems.

The Greencore board will have to weigh this up in any decision it makes. There are very strong pragmatic reasons for swallowing the bitter pill and getting on with running the business.

Not least amongst these is the prospect of a takeover bid emerging in the wake of stakebuilding by property developer Liam Carroll.

However, it would be hard for the Greencore management to present such a course of action as anything other than a defeat. The company has consistently adopted a hardball approach to the issue since it surfaced earlier this year.

Equally, it would be a hard enough sell to the company's shareholders as even the €98 million that is on offer comes with a number of conditions intended to prevent a windfall for investors in Greencore.

The Minister for Finance has dictated where the €98 million should go - with €50 million going to tidy up the Company pension scheme, €20 million ear-marked for cleaning up the sugar factory sites and the balance for a redundancy package for workers.

"This essentially prevents the company utilising this cash to pay down debt," points out Paul Mead of NCB stockbroker. Other uses for the money that might have been more attractive to Greencore shareholders have also effectively been ruled out and analysts are already taking their red pencils to their Greencore forecasts.

This may well prove to be a step too far for Greencore. But equally there may be some room for negotiation once the heat has gone out of the issue. Once again, Greencore can question the legal basis of the Minister's authority to decide how the money allocated to Greencore should be spent.

There are also strong practical arguments against such an approach, particularly when it comes to site clean-up costs.

Greencore would argue that the better approach is a commitment to rehabilitating the sugar factory sites to a standard agreed with the Environmental Protection Agency rather than deciding to spend a fixed amount. Similar arguments can be made with respect to the pension scheme and the redundancy payments.

"The company would far rather put forward a scheme focused on achieving agreed outcomes," explained one source.

A willingness on the Government side to meet Greencore halfway on this issue could head off legal action and stalemate.

But doing so would involve the Government doing something that they have successfully avoided to date.

By dictating that the €98 million be spent on pensions, site clean up and redundancies, they have been able to deny claims from the farm lobby that money which could go to farmers is instead lining the pockets of Greencore shareholders.

Conceding this point is not a very appealing prospect politically, but the Government is not entirely in the driving seat. If Greencore does not play ball and submit an acceptable restructuring plan at the end of the month, the whole process will stall, the compensation payments will not be made and the issue will remain very much alive in the run-up to the next election.

Undoubtedly this will have unwelcome consequences in beet-growing constituencies.

On balance, some sort of compromise seems likely, particularly given the appearance of Liam Carroll on the share register. The reclusive property developer has paid €173 million for Dermot Desmond's 21.5 per cent stake in the company and, as one source said yesterday, "you don't do that unless you have some sort of game plan".

Speculation as to what Carroll's intentions are centres on Greencore's property assets, which include a significant site near Gatwick airport south of London as well as the former sugar factories in Carlow and Mallow, Co Cork.

If, as expected, Carroll takes his stake to over 25 per cent, he can block the sale of any significant assets, which would require 75 per cent shareholder approval.

But by the same token, a shareholding of this size could make it harder for him to acquire specific assets out of the business. A full bid for the company by Carroll, however, probably in partnership with somebody, cannot be ruled out.

The partners would be interested in the substantial UK-based convenience food business which now accounts for two-thirds of the business and would be attractive to private equity investors.

If Greencore is put into play, the last thing Dilger and his team - who may have their own designs on the convenience foods business - want is to be embroiled in a messy dispute with Government.