Greencore has recommended to shareholders a part-cash, part-stock deal to takeover Bakkavor Group to create one of the UK's largest convenience food businesses with combined revenues of c. £4m.
The Dublin-based food-to-go maker has also reported adjusted operating profit of £45.2m for the first half of its financial year, up 59.7% year-on-year, after revenues rose 6.5% to £992m.
The group credited the new business wins impact of 2.9%, a mix impact of 1%, and the positive effect of inflation recovery and price (2.6%) for the growth in revenue in the six months to the end of March.
Free cash flow swung positively by £64.3m to £37.8m following a £26.5m loss last year. Similarly, free cash flow conversion jumped from 36.7% to 78.6%.
Greencore's net debt also declined £61.8m from the same period last year from £198m to £136.2m, with its adjusted net debt to adjusted EBITDA ration declining from 1.4x to 0.8x and return on invested capital increasing 290bps to 13.1%.
The group has upgraded its full-year adjusted operating profit guidance to a range of £114m to £117m, which would be above pre-pandemic levels of profitability, up from £112-115m previously.
The recommended acquisition values Bakkavor, a leading 'food for later' company that produces chilled, frozen and ambient convenience food, at £1.2m (€1.4bn).
If they approve the deal, Bakkavor shareholders would receive 0.604 Greencore shares and 85 pence in cash per share they own, which is equivalent to £2 per share, representing a premium of 32.5-40% on Bakavor's share price.
The companies said there is potential for further value if Bakkavor's US business is sold. Greencore shareholders would own 56% of the combined group, which would have approximately 30,500 employees.
“The combination of Greencore and Bakkavor is an unrivalled opportunity to create a true UK national food champion with an even greater breadth of category range and deeper customer relationships," said Dalton Philips, CEO of Greencore.
In addition to bringing together two "experienced teams" and "complementary portfolios," Philips said the new group would be able to invest more in innovation and product development
"We look forward to welcoming Bakkavor’s employees and creating an exciting, combined business for all stakeholders. Bakkavor is the ideal partner for Greencore and we look forward to delivering on the significant growth potential of the enlarged business.”
Mike Edwards, CEO of Bakkavor, added: "Combining with Greencore would bring together two businesses with the best people in the industry, allowing us to take a ‘best of both approach’ to drive performance on every level.
"The combined business will create more opportunities for colleagues, allow us to do an even better job for customers, and be even more resilient.
"I am confident that the relentless focus that both businesses have on quality, service and innovation, and on striving to be a great place to work, will remain at the heart of the bigger business.”
Greencore believes the acquisition will result in annual cost synergies of £80m by the third year, and that the group will see adjusted earnings per share growth from the first full financial year onwards.
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