Shunned Unigate in hostile Terranova bid

UNIGATE yesterday launched the first hostile bid in the food sector for more than six years by tabling a pounds 228.5m offer for Terranova Foods, the chilled foods company demerged from Hillsdown Holdings in October.

The cash offer, at 125p per share, was immediately rejected by Terranova management. It said the bid was "inadequate, opportunistic and fails to reflect the current value or future prospects". Terranova shares soared by 31p to 135.5p, indicating prospects for a higher bid.

Analysts said Unigate would have to raise its offer price to around 140p to 150p to secure victory. It is thought some of Terranova's institutions will be looking for a reasonable premium to the 140p price at which Terranova was demerged from Hillsdown last autumn.

The bid will be seen as a test of nerve for Sir Ross Buckland, chief executive of Unigate. He walked away from a pounds 1.6bn bid for the whole of Hillsdown last year, having principally been interested in the chilled food operation. Over the weekend an attempt to gain an agreed deal failed when a 125p Unigate approach was rejected.

Yesterday Sir Ross said he had only been interested in the chilled food business last year, but Hillsdown's reluctance to sell it separately forced him to make an offer for the whole company.

Unigate, whose interests span dairy, chilled foods and distribution operations, said the deal had "compelling logic". It highlighted scope for cost savings and synergies, with Unigate adding its buying and distribution to Terranova's brands. It said Terranova's Buxted chickens would fit with its own Malton pig division. Unigate's Shape brand could be extended across Terranova's ready meal and sandwich ranges.

Analysts say there is scope for cost savings of at least pounds 2.5m a year and that the deal could be earnings enhancing at up to 200p. Unigate is under pressure to use its pounds 130m cash pile.

This is the first hostile bid in food since Tomkins won control of Ranks Hovis McDougall in 1992. Other bidders could enter the ring for Terranova, with Tomkins a candidate.

Sir Ross said: "Terranova has insufficient scale to take advantage of the opportunities open to it. This deal offers certainty to shareholders."

Unigate shares closed unchanged at 410.5p.

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