Statement on Merger Benefits
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION (DIRECTLY OR INDIRECTLY) IN WHOLE OR IN PART, IN OR INTO ANY JURISDICTION WHERE TO DO THE SAME WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION.
THE NEW GREENCORE SHARES TO BE ISSUED PURSUANT TO THE MERGER HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, NOR UNDER ANY OF THE RELEVANT SECURITIES LAWS OF CANADA, AUSTRALIA, JAPAN OR SOUTH AFRICA. ACCORDINGLY, THE NEW GREENCORE SHARES MAY NOT BE OFFERED, SOLD OR DELIVERED, DIRECTLY OR INDIRECTLY, IN CANADA, AUSTRALIA, JAPAN OR SOUTH AFRICA, EXCEPT PURSUANT TO EXEMPTIONS FROM APPLICABLE REQUIREMENTS OF ANY SUCH JURISDICTION.
FOR IMMEDIATE RELEASE 24 January 2011
Greencore Group plc ('Greencore')
Statement on Merger Benefits
As a consequence of the announcement of a recommended cash offer by BH Acquisitions Limited for Northern Foods Plc ('Northern Foods'), Greencore is required by the City Code on Takeovers and Mergers to formally report on the merger benefits statement made in connection with the synergies stated in the announcement on 17 November 2010 (the 'Merger Announcement') as part of the proposed combination between Greencore and Northern Foods to create Essenta Foods (the 'Merger'). The board of Greencore confirms the £40 million annual costs synergies which were referred to in the Merger Announcement and is providing further details of the sources and bases of preparation of these expected synergies, together with reports thereon from KPMG LLP and from Barclays Capital, financial adviser to Greencore.
Synergy benefits
· In the period from the Merger Announcement to 17 December 2010, a combined team of senior executives from both Northern Foods and Greencore undertook a detailed integration planning process. In particular, since the Merger Announcement, a joint integration team was able to undertake further work on estimated synergies, including an independently conducted exercise to look at purchasing overlap in greater detail and a more detailed review of both companies' operational structures, operational programmes and distribution and supply chains
· This process has reinforced the belief of the board of Greencore on the delivery of the annual net cost synergies of at least £40 million.1 These synergies are expected to comprise approximately £15 million from overhead cost savings, approximately £20 million from purchasing and supply chain improvements and approximately £5 million from financing and tax efficiencies. These savings are in addition to any cost savings that may be made from the removal of overhead costs from the standalone Northern Foods cost base as a result of Northern Foods' previously announced restructuring. In addition, Greencore believes there is potential for further upside from additional operational synergies which have not yet been fully quantified.
· The board of Greencore believes that at least half of these synergies would be realised in the first 12 months after completion of the Merger, rising to approximately 90% in the second year after completion of the Merger, with the full amount of synergies being realised in the third year after completion of the Merger. It is expected that realisation of these synergies would incur one-off cash costs of approximately £45 million, of which approximately two-thirds would be incurred in the first 12 months after completion of the Merger, with the remainder being incurred in the following year
· In addition to these cost synergies, the board of Greencore believes that the Merger would provide an opportunity to achieve certain revenue synergies through leveraging distribution channels, brands, product portfolios and research and development capability across the combined group. These additional synergies have not been quantified.
Analysis of the expected synergies
Overhead cost savings
Annual synergies of approximately £15 million are expected to be achieved through creating a single group management structure and head office function, specifically:
· Creation of a single board and single executive management team;
· Combination of group functions and removal of duplication in areas including group finance, treasury, tax , corporate development and legal;
· Creation of a single operating entity in UK, eliminating overlapping roles across the business, within category businesses and within manufacturing units;
· Rationalisation of head office locations; and
· Reduction in advisory and regulatory fees.
Purchasing and supply chain synergies
Annual synergies of approximately £20 million are expected to be achieved through realising the benefits of a total combined purchasing base in excess of £1 billion, specifically:
· Generating efficiencies through scale with common suppliers across both organisations;
· Establishing common terms with suppliers;
· Creating a single purchasing organisation;
· Leveraging the larger distribution and supply chain; and
· Lowering storage costs and sharing trucks.
Financing and tax synergies
Annual tax synergies of approximately £3 million are expected to be achieved through moving Northern Foods to Greencore's tax structure and Essenta Foods being domiciled in Ireland. The financing synergies of approximately £2 million per annum are expected to be achieved through lower interest rates on a business with a stronger balance sheet and with an expected investment grade rating from the DBRS rating agency.
Cost of achieving synergies
The one-off costs of achieving these synergies are expected to be approximately £45 million, of which approximately two-thirds would be incurred in the first 12 months after completion of the Merger, with the remainder being incurred in the following year.
Additional operational synergies
We have not quantified the potential benefit from additional operational synergies but believe there will be upside potential through implementation of existing lean operations practices across both businesses. Greencore has achieved significant cost reductions per unit through the successful implementation of these programmes, specifically:
· Labour productivity optimisation
· Raw material waste initiatives
· Manufacturing optimisation
· Energy and maintenance programmes
Reports
The estimate of synergies has been reported on as required by the City Code on Takeovers and Mergers by KPMG LLP and by Greencore's financial advisers, Barclays Capital. Copies of letters from KPMG LLP and Barclays Capital are set out in this Appendix.
Bases of calculation
Baseline cost numbers were agreed based on the underlying business plans of both parties to the Merger and, for the synergies arising from the combination of group functions, organisation information and role profiles were reviewed. Working teams from both Northern Foods and Greencore reviewed all relevant costs and considered the impact of the Merger on these costs. Cost saving assumptions were based on a detailed, bottom-up evaluation of the benefits available from elimination of duplicate activities, the leverage of combined scale economies and operational efficiencies arising from consolidation of procurement and activities within manufacturing facilities. In determining the estimate of cost savings achievable through the combination of Greencore and Northern Foods, no savings relating to operations have been included where no overlap exists. An independent team from KPMG LLP was used to validate the purchasing synergies by analysing sample data from both businesses.
In determining the organisation cost synergies, the new Essenta Foods board, as announced on 17 November 2010, and the senior management team had been fully costed and formed part of the discussions involving Greencore and Northern Foods management.
In determining the financing and tax synergies, both parties worked together on the assumption of the merged company (Essenta Foods plc) being domiciled in Ireland. Independent advice was sought to analyse the tax benefits that would arise from the Merger.
Where appropriate, assumptions were used to estimate the costs of implementing the new structures, systems and processes required to realise the synergies. These assumptions were agreed by management of both parties.
Important Notes
1. The statements of estimated cost savings and synergies relate to future actions and circumstances which, by their nature, involve risks, uncertainties and contingencies. As a result, the cost savings and synergies referred to may not be achieved, or those achieved could be materially different from those estimated. No statement in this announcement should be construed as a profit forecast or interpreted to mean that Essenta Foods' earnings in the first full year following the Merger, or in any subsequent period, would necessarily match or be greater than or be less than those of Greencore and/or Northern Foods for the relevant preceding financial period or any other period.
2. Due to the scale of the combined group, there may be additional changes to the combined group's operations. As a result, and given the fact that the changes relate to the future, the resulting cost savings may be materially greater or less than those estimated.
3. In arriving at the estimate of synergies set out in this announcement, the Directors of Greencore have assumed that there will be no significant impact on the business of the combined group arising from any decisions made by Competition Authorities or regulatory bodies.
Responsibility
The directors of Greencore accept responsibility for the information contained in this announcement. To the best of the knowledge and belief of the directors of Greencore (who have taken all reasonable care to ensure that such is the case) the information contained in this announcement for which they accept responsibility is in accordance with the facts and does not omit anything likely to affect the import of such information.
Dealing Disclosure Requirements
Under Rule 8.3(a) of the City Code on Takeovers and Mergers (the "Code"), any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any paper offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any paper offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any paper offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a paper offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.
Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any paper offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any paper offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.
If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a paper offeror, they will be deemed to be a single person for the purpose of Rule 8.3.
Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).
Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. If you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure, you should contact the Takeover's Panel's Market Surveillance Unit on +44 (0)20 7638 0129.
Cautionary Note Regarding Forward Looking Statements
This announcement includes forward-looking statements, such as Greencore's beliefs and expectations regarding the proposed combination with Northern Foods. These statements are based on certain assumptions and reflect Greencore's current expectations. Forward-looking statements also include statements about Greencore's beliefs and expectations related to the Merger, benefits that would be afforded to customers, benefits to the combined group that are expected to be obtained as a result of the Merger, as well as the parties' ability to enhance shareholder value through, among other things, the delivery of expected synergies. There can be no assurance that the Merger will be consummated or that the anticipated benefits will be realised. The Merger is subject to various approvals and the fulfilment of certain conditions, and there can be no assurance that any such approvals will be obtained and/or such conditions will be met. All forward-looking statements in this announcement are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. These risks and uncertainties include: the ability to achieve the cost savings and synergies contemplated through the Merger; the failure of Greencore and Northern Foods shareholders to approve the Merger; the effect of regulatory conditions, if any, imposed by regulatory authorities; the reaction of Greencore's and Northern Foods' customers, employees and suppliers to the Merger; the ability to promptly and effectively integrate the businesses of Greencore and Northern Foods; and the diversion of management time on Merger-related issues. Additional factors that could cause actual results or events to differ materially from current expectations are discussed in Greencore's and Northern Foods' respective materials filed with the securities regulatory authorities in the United Kingdom and in the Republic of Ireland (as the case may be) from time to time including Greencore's Annual Report and Accounts for the financial year ended 24 September 2010 and Northern Foods' Annual Report and Accounts for the 53 week period ended 3 April 2010. Any forward-looking statements made by or on behalf of Greencore speak only as of the date they are made. Greencore disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Past performance is no guarantee of future performance.
This announcement has been prepared without taking into account the investment objectives, financial situation or needs of any particular person.
Notice to U.S. Investors
The information contained herein does not constitute an offer of securities for sale in the United States or offer to acquire securities in the United States.
The Greencore ordinary shares have not been, and are not intended to be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold, directly or indirectly, into the United States except pursuant to an applicable exemption. The Greencore ordinary shares are intended to be made available within the United States in connection with the Merger described herein pursuant to an exemption from the registration requirements of the Securities Act.
The Merger described herein relates to the securities of a non-U.S. company. The Merger is subject to disclosure and procedural requirements of Ireland and the United Kingdom, which are different from those of the United States. Financial statements included in the document, if any, have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, which may not be comparable to the financial statements of United States companies.
It may be difficult for you to enforce your rights and any claim you may have arising under the U.S. federal securities laws, since Greencore and Northern Foods are located in Ireland and the United Kingdom respectively, and some or all of their officers and directors may be residents of Ireland, the United Kingdom or other non-U.S. countries. You may not be able to sue a non-U.S. company or its officers or directors in a non-U.S. court for violations of the U.S. securities laws. It may be difficult to compel a non-U.S. company and its affiliates to subject themselves to a U.S. court's judgment.
These statements of estimated cost savings and synergies relate to future actions and circumstances which, by their nature, involve risks, uncertainties and contingencies. As a result, the cost savings and synergies referred to may not be achieved, or those achieved could be materially different from those estimated. Neither this statement nor any other statement in this document should be construed as a profit forecast or interpreted to mean that Essenta Foods’ earnings in the first full year following the Merger, or in any subsequent period, would necessarily match or be greater than or be less than those of Greencore and/or Northern Foods for the relevant preceding financial period or any other period.
A copy of this announcement is and will be available free of charge for inspection on Greencore's website at www.greencore.com during the course of the Merger.
Appendix
Published report on merger benefits statements
The Directors
Greencore Group plc
2 Northwood Avenue
Northwood
Santry
Dublin 9
Ireland
Barclays Capital (the investment banking division of Barclays Bank PLC)
5 North Colonnade
Canary Wharf
London E14 4BB
United Kingdom
24 January 2011
Dear Sirs
Greencore Group plc
We refer to the statement made by the directors of Greencore Group plc ('the Directors') on page one of the Statement of merger benefits ('the Statement') to the effect that:
"The board of Greencore confirms the £40 million annual costs synergies which were referred to in the Merger Announcement"
The Statement has been made in the context of the disclosures on pages four to six setting out, inter alia, the basis of the Directors' belief (including sources of information) supporting the Statement and their analysis and explanation of the underlying constituent elements.
This report is required by Note 8(b) to Rule 19.1 of the City Code on Takeovers and Mergers ('the City Code') and is given for the purpose of complying with that requirement and for no other purpose.
Responsibility
The Statement is the responsibility solely of the Directors. It is our responsibility and that of Barclays Capital (the investment banking division of Barclays Bank PLC) to form respective opinions, as required by Note 8(b) to Rule 19.1 of the City Code as to whether the Statement has been made by the Directors with due care and consideration.
Save for any responsibility which we may have to those persons to whom this report is expressly addressed, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report.
Basis of opinion
We have discussed the Statement, together with the underlying plans, with the Directors and with Barclays Capital (the investment banking division of Barclays Bank PLC). We have also considered the letter dated 24 January 2011 from Barclays Capital (the investment banking division of Barclays Bank PLC) to the Directors on the same matter. Our work did not involve any independent examination of any of the financial or other information underlying the Statement. We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board of the United Kingdom.
We do not express any opinion as to the achievability of the benefits identified by the Directors in the Statement. The Statement is subject to uncertainty as described on page five of the Statement. Because of the significant changes in the enlarged group's operations expected to flow from the merger and because the Statement relates to the future, the actual merger benefits achieved are likely to be different from those anticipated in the Statement and the differences may be material.
Opinion
On the basis of the foregoing, we report that in our opinion the Directors have made the Statement, in the form and context in which it is made, with due care and consideration.
Yours faithfully
Letter from Barclays Capital
24 January 2011
The Directors
Greencore Group plc
No.2 Northwood Avenue
Northwood Business Park
Santry
Dublin 9
Ireland
Dear Sirs,
Proposed combination between Greencore Group plc and Northern Foods plc
We refer to the statement of estimated cost savings, the bases of preparation thereof and the notes thereto (together the 'Statement') made by Greencore Group plc ('Greencore') set out in this announcement, for which the Directors of Greencore (the 'Directors') are solely responsible.
We have discussed the Statement, together with the relevant bases of belief (including the assumptions and sources of information referred to therein) with the Directors and those officers and employees of Greencore who developed the underlying plans. The Statement is subject to uncertainty as described in this announcement and our work did not involve an independent examination of any of the financial or other information underlying the Statement.
We have relied upon the accuracy and completeness of all the financial and other information reviewed by us and have assumed such accuracy and completeness for the purposes of rendering this letter. We have also reviewed the work carried out by KPMG and have discussed with them the conclusions stated in their letter of 24 January 2011 addressed to yourselves and ourselves on this matter.
We do not express any opinion as to the achievability of the cost savings identified by the Directors. Because of the significant changes in the enlarged group's operations expected to flow from the merger and because the Statement relates to the future, the actual cost savings achieved are likely to be different from those anticipated in the Statement and the differences may be material.
This letter is provided pursuant to our engagement letter with Greencore solely to the Directors in connection with Note 8(b) of Rule 19.1 of the City Code on Takeovers and Mergers and for no other purpose. We accept no responsibility to Northern Foods or its shareholders or any other person other than the Directors in respect of the contents of, or any matter arising out of or in connection with, this letter.
On the basis of the foregoing, we consider that the Statement by Greencore, for which the Directors are solely responsible, has been made with due care and consideration in the context in which it was made.
Yours faithfully,
Mark Todd
Managing Director
For and on behalf of Barclays Capital, the investment banking division of Barclays Bank PLC
Barclays Capital, the investment banking division of Barclays Bank PLC ("Barclays Capital"), which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for Greencore and for no one else as sole financial adviser, joint corporate broker, and joint sponsor in connection with the Merger and will not be responsible to anyone other than Greencore for providing the protections afforded to its clients or for providing advice in relation to the Merger or any other matters referred to in this document.
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