GREENCORE COULD be facing costs of more than €10 million relating to its failed merger with Northern Foods.

The company yesterday officially withdrew from the race for Northern Foods, stating that “an improved offer could not be concluded on terms which would deliver sufficiently strong returns to Greencore shareholders”.

It is believed that Greencore had secured a deal with a private equity partner, but that Northern Foods’ pension scheme trustees vetoed the deal, which would have involved the hiving-off of Northern’s bakery division, which includes the Fox’s biscuits and Matthew Walker brands.

Because the bakery division falls under the company’s defined benefit scheme, the trustees were against the splitting of the company – a challenge that also faced Ranjit Boparan – and the trustees are believed to have rejected an offer by Greencore for up to half of the proceeds of the disposal by way of compensation.

Discussions are understood to have continued right up to this week.

Prior to teaming up with a private equity partner, Greencore had held discussions with a number of food companies including Nestlé about submitting a joint bid for Northern Foods.

It is believed that the company had also planned an equity raising exercise and had secured debt facilities to finance the revised joint bid.

Greencore said that costs incurred during the proposed merger deal would be treated as exceptional charges in the first half of the 2011 financial year.

The company is entitled to a break fee of approximately €2 million as a result of Northern Foods withdrawing its recommendation for the proposed merger, while Greencore and Northern Foods had also agreed to share the costs of the deal.

However, the costs incurred in this instance are expected to be particularly high because of charges relating to the bank facilities the companies were required to have in place when the planned formation of the new company was announced.

Meanwhile, BH Acquisitions, the holding vehicle for Ranjit Boparan, increased its shareholding in Northern Foods yesterday after the share price fell below 73 pence.

Mr Boparan acquired a further 13.6 per cent of the company, bringing his stake to 24.9 per cent.

Together with acceptances from 23.25 per cent of Northern Food shareholders, he now has the backing of 48.25 per cent of the company.

Shares in Northern Foods in London closed 2 per cent down at 72.75 pence.

Greencore’s share price rallied yesterday, closing up 2.5 per cent higher at €1.20 with analysts noting a sense of “market relief” at Greencore’s decision not to submit a revised offer for the company.

Greencore declined to comment on the announcement yesterday.

In its statement to the stock exchange released as markets opened yesterday morning, it said that it had been working with a partner over the past few weeks “in order to agree a simultaneous sale of certain of the Northern Foods branded businesses” but failed to reach agreement “after substantial investigation”.

Greencore is due to publish its first-half results in May.