Greencore shares fall almost 9% as it pulls plug on US business

Greencore chief executive Patrick Coveney insists the company's surprise decision to sell out of the US market was not a transaction done under duress. He said the $1.1 billion sale to rival Hearthside would deliver "real value" for shareholders.

Investors, however, took a dim view of the sandwich maker’s sudden U-turn, which comes just months after Mr Coveney himself took charge of the US business, pledging to turn it around. Shares fell 8.8 per cent on the back of the announcement.

The move comes just two years after Greencore spent $748 million buying Illinois-based Peacock Foods in a bid to quadruple its US sales and cement its position in the fast-growing US food retail sector.

The company, which sells sandwiches, salads and sushi to customers including Starbucks and 7-Eleven in the US, said on Monday it had agreed to sell its entire US business for $1.1 billion (€863 million) to rival food manufacturer Hearthside.

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Part of the proceeds from the sale, which still requires shareholder approval, will go back to shareholders in the form of a special €509 million dividend, worth 72p per share.

“We have left the US market because a strategic buyer offered us a fabulous deal on our business,” Mr Coveney said. “We had no strategy to exit the US market. We felt we were making very good progress in not only scaling up but delivering progressively better returns on our US business.

“But because of the value creation that was available through the combination of Hearthside and Greencore USA, we felt and feel the right thing to do for shareholders is to crystallise the value of what we’ve built in America,” he said.

“The mindset we have in doing this is not one of a distressed sale or a retreat or a forced exit. It’s one of having to embrace a compelling offer for our business,” Mr Coveney said.

Profit warning

The five US businesses that comprise the US operation have all been acquired since Mr Coveney took over as chief executive in 2008. In total, the company had spent $979 million in capital growing the US business.

Greencore issued a profit warning last March amid ongoing concern about undercapacity and the loss of contracts at its three main legacy plants in the US, which are separate from its recently acquired Peacock business .

At the time it said it was ceasing production at its loss-making Rhode Island facility, which has since been sold, while repurposing its Jacksonville plant in Florida following the loss of a major supply contract.

Another underperforming plant in Minneapolis, meanwhile, was expected to win several new contracts.

In the end the company opted to exit the entire US market. It becomes the third major Irish food group – after baked-goods specialist Aryzta and cider maker C&C – to run into trouble in the US market.

Focus on UK

“In the short to medium term, our focus will only be on the UK,” Mr Coveney said. Despite the cloud of Brexit hanging over the UK market, he said the food-to-go proposition – sandwiches, salads, sushi – continued to have very good market growth and projected growth.

He said the company’s exposure to Brexit was limited because most its production was done in the UK for the UK market. He also noted that the company has more than doubled its profits in the UK since 2011.

Asked if the US reversal had implications for his stewardship of the company, he said: “Maybe, but I would say the UK strategy has largely been pursued under my watch too.”

Greencore said the enterprise value to earnings before interest, tax, depreciation and amortisation (Ebitda) multiple of the deal is around. That compares with the 10.4 multiple that Greencore paid for Peacock in 2016.

The deal is expected to close by late November 2018. Shareholders will be asked to approve the transaction at an egm in Dublin on November 7th.

Greencore in the US

Date – Target – Amount – (EarnOut)

2008 – Home Made Brand Food – $44m (+$10m)

2010 – On a Roll – $3.4m

2012 – Market Fare – $36m

2012 – Schau – $13m ($4.3)

2016 – Peacock Foods – $746m