Greencore's associate company in the US, Imperial Holly, has succeeded in its bid for the American sugar company Savannah Foods, but has had to increase its offer by 8 per cent to $556 million (£368 million) to get the support of the Savannah board.
The combination of Imperial Holly and Savannah will create the biggest sugar processor in the US, with 31 per cent of the market - ahead of Tate & Lyle. The merged company will have a stock market value of nearly $850 million.
Savannah has three cane sugar refineries in Georgia, Louisiana and Florida and four sugar beet factories in Michigan. Imperial Holly is based in Texas and operates a cane sugar refinery and eight sugar beet factories in Montana, Wyoming, Texas and California.
The structure of the offer has not been changed and Imperial Holly will pay Savannah shareholders 70 per cent in cash and 30 per cent in Imperial Holly shares. The number of shares that will be issued to Savannah shareholders means that Greencore's stake in Imperial Holly will fall from 27 per cent to 16 per cent, assuming the Irish company does not inject fresh equity into Imperial Holly.
Some analysts believe that the American sugar industry is heading for a period of oversupply and increases in refining capacity - with the subsequent affect on margins.
At the current share price, it would cost Greencore over £60 million to return to its previous 27 per cent stake in Imperial Holly and close on £200 million to take its stake to over 50 per cent. After the acquisition, the enlarged Imperial Holly will have debt of close on $400 million and may look to a share issue to reduce that debt. In such a situation, Greencore would have no option to meet its share of such a cash call or risk further dilution from 16 per cent.
