RANJIT Boparan’s plan to bid for Northern Foods might be audacious, but the odds are stacked against it. An already-planned merger between Northern Foods and Irish rival Greencore is still the best deal on the table.
The marriage of Northern and Greencore – the two leading chilled players in the UK market – would bring significant benefits; cost synergies are expected to total some £40m. However, the main advantage would be the extra clout that the pair could expect as the number one player in private label ready meals. Currently, the market is too fragmented; smallish firms lack the scale required to extract a decent return from increasingly powerful supermarkets.
As a specialist in raw – rather than prepared – chicken, Boparan’s 2 Sisters food would be a less suitable partner; the synergies would be smaller and the bargaining power less strong. It could also struggle to swallow Northern’s £140m pension deficit, which is one of the key parts of its merger structure with Greencore. For that reason, management should stick with Plan A.