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Greencore cites additional synergies from merger with Northern

Implementing lean practices established at Greencore across Northern Foods sites could generate additional cost savings that have "not yet been fully quantified" were the two to merge, Greencore has argued.

The firm, which is currently mulling over its options in the wake of Ranjit Boparan's 73p-a-share cash offer for Northern Foods, is required by law to spell out how getting into bed with Northern could deliver annual synergies of at least £40m (see below).

However, it also hinted at additional cost savings - as yet unquantified - from rolling out labour productivity optimisation, raw material waste initiatives, manufacturing optimisation and energy and maintenance programmes across the combined group.

It added: "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."

Meanwhile, annual synergies of c.£15m are expected through creating a single board and management team; combining group functions and removing duplication in finance, treasury, tax, corporate development and legal functions; creating a single operating entity in UK, eliminating overlapping roles across the businesses; rationalising head office locations and reducing advisory and regulatory fees.

Savings of £20m are expected through extracting better terms from suppliers; creating a single purchasing organisation; leveraging a larger distribution and supply chain; lowering storage costs and sharing trucks.

Finally, annual savings of £3m are expected from moving Northern Foods to Greencore's tax structure and the fact that Essenta Foods would be domiciled in Ireland, said the firm.

Additional savings of £2m a year are also expected through "lower interest rates on a business with a stronger balance sheet and with an expected investment grade rating from the DBRS rating agency", it added.

Northern Foods investors must now wait to see if Greencore can offer anything more compelling than Ranjit Boparan.

Shore Capital head of equity research Dr Clive Black said: "Our recommendation at this juncture and ahead of a new deadline for acceptances is that Northern Foods shareholders should wait and see what, if anything, Greencore proposes before accepting the Boparan offer."

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