Northern Foods to merge with Greencore

(ALAMY)

Northern Foods, the manufacturer of ready meals for Marks & Spencer, Morrisons and Tesco, has agreed to merge with Ireland's Greencore to form a giant food business boasting yearly sales of about £1.7bn.

The combined business is to be named Essenta Foods, with headquarters in Dublin and a Stock Exchange listing in London.

Shares in Northern Foods, however, jumped nearly 25 per cent yesterday amid hopes of a counter bid, with analysts at Credit Suisse highlighting possible private equity interest. The speculation drove the UK's group stock up 11.25p to 56.5p, above the deal price, while Greencore shares jumped 31 per cent to €1.35.

The companies said that the merger is expected to deliver cost savings of about £40m within three years through better buying power and cost cuts. Although Greencore is based in Ireland, most of its employees are in the UK, where it has 7,000 staff and 17 plants. Northern has 14 factories and employs 9,000 in the UK, but the companies yesterday said they hoped the merger would in fact safeguard jobs and any redundancies were likely to be modest.

The merger will see Northern and Greencore shareholders each end up owning half of the new group. Northern investors will get 0.4479 new Greencore shares for every share, worth about 51p last night.

Essenta will be chaired by Northern Foods' chairman Anthony Hobson, while his opposite number at Greencore, Ned Sullivan, will be deputy chairman. Greencore's chief executive Patrick Coveney will assume the same position at Essenta, while Simon Herrick, the finance director at the UK company, will take over as chief financial officer.

But Stefan Barden, the current chief executive of Northern Foods, was conspicuous by his absence from the list of directors published when the merger was unveiled. Mr Coveney declined to comment on the matter.