City Talk: Anglo-Irish merger deal
Greencore, the Irish food supplier, is merging with Northern Foods in a £570m deal. This is good timing for Greencore as the International Monetary Fund has arrived in Ireland in order to bail out the shattered Irish economy.
Northern Foods supplies Marks & Spencer and Tesco. Greencore supplies private-label chilled convenience foods to Morrisons, Asda and Sainsbury's. The union makes sense, given the tendency of big supermarket groups to demand more and more price cuts from food suppliers. Now they have the necessary clout to resist undue pressure on pricing, and have merged under the new name of Essenta Foods. This will become Britain's biggest private-label sandwich supplier, as well as owning Goodfella's Pizzas.
Greencore boss Patrick Coveney will be chief executive of Essenta, while Anthony Hobson, chairman of Northern Foods, will become chairman of Essenta. The merger needs the green light from the UK competition regulators. Northern Foods' shareholders will get 0.4479% of a new Greencore share for each share they own. The new company will be located in Dublin, but will remain listed on the UK stockmarket.
Northern Foods' share price rose by 25% on the news and Greencore shares saw a 30% rise. There will be synergy benefits worth £40m from the merger, with most of these coming from reducing costs in the two food producers' chilled food operations. Predators eyeing Northern Foods have been put off by Northern's pension deficit of £142m. As a result of the merger with Greencore, Northern's pension trustees have been given a promise of a yearly £15m payment for the next three years.
Asda picks King as COO
Wal-Mart's UK subsidiary Asda has taken on former Tesco executive Simon King as its new chief operating officer. King is currently boss of Panda Retail, a Saudi Arabian retail chain, and prior to that was with Tesco as chief executive of the retailer's Kipe operation in Turkey. He will take over running Asda's retail supermarkets and stores along with the supply chain.
OFT price fixing probe is quietly shelved
The well-publicised multi-million investigation by the Office of Fair Trading (OFT) into charges of price fixing in the UK supermarket and food manufacturing sectors has been dropped without fanfare.
The OFT did not succeed in finding adequate evidence of price fixing to merit a full-blown investigation.
The OFT had investigated a number of supermarkets by carrying out dawn raids on Asda, Tesco, Sainsbury's and Morrisons, while suppliers such as Unilever were also raided.
In its report closing the investigation, the OFT received evidence of price co-ordination in the sector between 2005 and 2008, but decided that it was "appropriate to close the investigation on administrative priority grounds".
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