Dalton Philips might not have been every Greencore shareholder’s first choice when he was named as incoming chief executive almost three years ago.
His last period as boss of a publicly-quoted business – UK supermarket chain Morrisons – ended up with him being sacked, in 2015, after five years of slumping profits and shares.
The Harvard Business School graduate’s final months in his last job, as chief executive of DAA, will be remembered by many for the chaotic post-Covid scenes of snaking queues and thousands of passengers missing flights at Dublin Airport in the early summer of 2022 – rather than the €2 billion investment plan he developed while in the job.
But the turnaround Philips has overseen at Greencore, the Dublin-based maker of sandwiches and ready meals for retailers from Aldi to Marks & Spencer, has been remarkable.
Shares in the group have almost tripled in London from their lows in late 2022, when Philips was first trying to get a handle on a business that had been battered in quick succession by the pandemic, supply-chain and labour issues, and inflation.
Under Philips, Greencore has refocused on time-and-motion basics, trying to squeeze efficiencies out of a production-line business, and gone against its DNA to walk away from unprofitable contracts including a £40 million (€47.3 million) ready-meals gig with Asda. He also culled hundreds of management roles in a group that employs 13,600 mainly low-paid workers, and either passed on to supermarkets or found other ways to offset hundreds of millions of pounds in inflation costs.
Even after upgrading its earnings forecasts a number of times for its last financial year to September, Greencore’s final results came in ahead of target. It said earlier this week that its adjusted operating profit for its current year will rise as much as 18 per cent to £115 million – about 7 per cent above what analysts, on average, had pencilled in – amid strong volume growth from existing customers and new contract wins, as well as operational and cost improvements.
However, news on Tuesday that Greencore has agreed in principle a possible £1.2 billion offer to buy Bakkavor – a company set up almost 40 years ago by Icelandic brothers Agust and Lydur Gudmundsson to sell fish roe but which has grown by acquisition to become one of the largest convenience foods companies in the UK market – marks a major departure in ambition.
[ Greencore agrees deal to acquire rival BakkavorOpens in new window ]
Philips doesn’t bear the scars of Greencore’s ill-fated foray in the difficult US market by acquisition in 2008, which makes it easier to countenance a merger that would more than double revenues to £4 billion.
The bid also sets Philips out as something of a rarity these days among second-tier Irish public limited companies. Sadly, the current crop of leaders of such companies broadly seem to lack the ambition or vision of the likes of former Kerry Group boss Denis Brosnan, Michael Smurfit, Ryanair’s Michael O’Leary and generations of leaders at CRH – who each used a stock-market listing as a means to build major international businesses.
These giants remain hunters. But a slew of Irish companies behind them have been bought off the stock exchange over the past decade. Others are sitting there wondering – hoping, even? – whether they might be next.
Greencore knows Bakkavor well. The latter had built up an 11 per cent stake in the Irish business before the 2008 financial crisis, stoking takeover speculation at Greencore – then also 29.9 per cent owned by boomtime developer Liam Carroll (the talk at the time was that Carroll was interested in Greencore’s defunct sugar plants in Carlow and Mallow for development).
Bakkavor sold its Greencore stake at a loss in October 2008 as the Gudmundssons, a handful of Viking oligarch trailblazers before the crash, saw their broader business empire come under pressure during the financial crisis. Bakkavor almost went under during the worst of that period. The Gudmundssons lost control of the business for a period, before managing to regain it a decade ago with the help of a US hedge fund.
The two convenience food groups share the same customers among major UK supermarkets – but have limited crossover in products. Bakkavor would add pizza, bread, desserts and dips to Greencore’s basket. On the face of it, the combined group would have greater negotiating power with the multiples. But some retailers may be cautious about being beholden to such a major supplier and award some contracts elsewhere.
The £2-per-share cash and stock bid comes after three previous offers were rejected by Bakkavor. Greencore shareholders would own about 56 per cent of the combined group if it goes through. It would see the Gudmundssons – who’ve had a sometimes controversial past – swap their 50.1 per cent stake in Bakkavor for 22 per cent of the bigger group, making them the biggest shareholders. They would also join the board.
Both sides are coy, for now, on what they see as “substantial” synergies. However, Deutsche Numis analyst Damian McNeela reckons it could amount to between £40 million and £95 million, which equates to 1-2.5 per cent of combined UK revenue or 4-9 per cent of combined operating costs.
Bakkavor is currently looking to offload its Chinese business, where it generates about 5 per cent of its sales. Greencore is unlikely to want to hold on to Bakkavor’s US business (almost 10 per cent of revenues), given its own sorry experience in that market.
The proposed deal pre-empts this. Bakkavor shareholders, led by the so-called Bakka brothers, would be entitled to an additional payment if its US operation is subsequently sold in the near term.
The former fish-egg traders still know how to strike a hard bargain.
