Greencore faces capital quest to fund Uniq deal
Joe Gill from Dublin-based Bloxham Stockbrokers told FoodManufacture.co.uk “It’s not a problem technically to do it in terms of the balance sheet, but it would be stretching the debt ratio to EBITDA…an asking price of £100m would make it very difficult to do a deal.”
In a recent note Bloxham said: “Greencore’s net debt to earnings before interest, tax, depreciation and amortization ratio is currently 2.8, excluding its pension deficit. This deal would bring that metric to 3.9.
“If a deal like this is to take place, it is inevitable, in our view, that equity finance will be needed.”
Equity finance routes
Standard equity finance avenues involve a new rights (share) issue to existing shareholders (which dilutes existing holdings), funding from retained profits (rather than paying shareholders dividends) or issuing shares to the target company’s shareholders.
The last measure was integral to Greencore’s planned merger with Northern Foods, but Uniq’s pension trustees are believed to favour a cash exit.
Gill said he agreed with UK-based analysts who pinpointed the poor performance of the Minsterley desserts division as an issue for any potential buyer of Uniq, but said: “All these UK businesses: bit of Premier [Foods], Bakkavor as well, have their various problems.”
Uniq’s EBIT (earnings before interest and tax) of £4.1m for the full year to December 31 2010, was a “tiny margin” that suggested parts of the business are under a “fair bit of stress” he said.
Nonetheless, Gill did not dismiss the prospect of a deal happening, and said the takeover would give Greencore the chance to broaden its retail client and product base (via Uniq customer Marks & Spencer) and an opportunity to scale-up its UK business.
“Whether they’ll get there or not is a moot point,” he said, noting Greencore’s burnt fingers and loss of €13.5m (£12m) in exceptional costs when the Essenta merger [with Northern Foods] fell through.
Northern Foods disappointment
Greencore cfo Alan Williams told this publication in late May that the Northern Foods experience helped Greencore to understand how value could be created in the sector, but pointed out that the firm clearly didn’t intend to write a cheque for €13.5m as a result.
Williams was tight-lipped about Greencore’s rumoured interest in Uniq, and Gill said the issue for management was whether to grow the business organically or via acquisitions, although he said the firm was under no real pressure to do a deal.
However, Greencore is on record as saying, after it pulled out of the running for Northern, that it still believes in the strategic merits of consolidation in the UK convenience foods sector.
Darren Shirley, Shore Capital, said: “Greencore has been a challenged business in the past, but the business is far more focused now [on UK convenience foods] than historically, when it was something of a mini food conglomerate.”
Shore Capital said in a recent note: “We view Greencore as a best-in-class operator in the UK prepared meals and food to go categories. After recent disposals, the group is benefiting from a focus on core competencies whilst the balance sheet is more robust.”
Greencore declined to comment on rumours that it - along with Samworth Brothers - is amongst first-round bidders for Uniq, with offers reportedly tabled last week, according to the Financial Times.
