Northern Foods defends cost savings claim from tie-up

NORTHERN Foods yesterday denied that a sizeable slice of the claimed £40 million of cost savings from its recommended takeover by Greencore will be creamed off by its big supermarket customers.

It followed institutional shareholders expressing doubts at the weekend that the synergies would accrue to the new merged company, Essenta.

One leading investor in the group voiced the fear that "food manufacturers are not in a strong position in the value chain".

The fund manager added that food manufacturers like Northern - which specialises in sandwiches, ready meals and pizzas - "are at the mercy of both raw material prices and strong buyers, and the supermarkets might well say they want a piece of the cost-saving action at Essenta".

But Northern Foods indicated yesterday that the possible extra demands of suppliers regarding on revised terms had already been taken into consideration in coming up with the synergies figure when the merger with Ireland-based Greencore was announced two months ago.

A Northern Food spokesman said yesterday: "The significant synergy potential in creating Essenta Foods was one of the key planks of this deal when we announced it in November. The synergies are net, and have been costed at 40m per year, with the potential for further revenue synergies (on top]. The 40m principally comprises corporate overheads, purchasing and supply chain synergies and financing and tax."

Indian chicken magnate Ranjit Boparan is doing due diligence on Northern before deciding whether to make a rival bid before this Friday's deadline.