In November 2016 Patrick Coveney waxed effusive about his transatlantic ambitions for Greencore, the maker of one in every two sandwiches sold on the British high street. The chief executive said that the $748 million takeover of the Illinois-based Peacock Foods would help to realise his “vision” of creating a leading food supply business in the United States.
Only 23 months later Mr Coveney has performed a stunning U-turn. Greencore called time on its US odyssey. It has agreed to sell its American operations for £871 milion, returning most of the proceeds to shareholders. “We are leaving because we got a really strong — I would say unique — offer,” he said. “We thought it was in the interest of shareholders to crystalise that value now rather than to deliver it over the next number of years.”
The volte-face is one of the most dramatic twists in the history of Greencore, which started life in 1926 as the Irish Sugar Manufacturing Company. During the Anglo-Irish economic war in the 1930s the company fell into state hands after Dublin nationalised its sugar industry. It was privatised in 1991 as Greencore, with 55 per cent of the shares listed on the Dublin exchange. The business moved away from sugar so that by 2006, when it closed its last sugar factory, its mainstay was convenience foods — sandwiches, ready meals, salads, sauces and soups. In 2011 it bought Uniq, one of Britain’s biggest food manufacturers, and the next year it moved to the London Stock Exchange, where it is quoted on the FTSE 250 with a market value of £1.5 billion. It began to expand into the US in earnest in 2008 after Mr Coveney, a former McKinsey partner, was promoted to chief executive.
The Peacock takeover established it as a significant player, quadrupling US revenues. Greencore financed the deal through a £439 million rights issue and a £200 million loan. The sale in effect unwinds the transaction. After selling its American subsidiary to Hearthside Food Solutions, a US snacks company, it will return £509 million in cash to shareholders through a 72p-a-share special dividend and spend £293 million to cut debts.
For shareholders there are two big questions: does the retreat make sense? And what are Greencore’s prospects as a UK-focused purveyor of ready-made food to Tesco, Marks & Spencer and Waitrose?
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The answer to the first is a qualified yes. Its US adventure has been far from smooth. In March Greencore lost a third of its value after flagging up problems at local factories. It parted ways with the head of its US subsidiary and Mr Coveney committed to spending half his time in the US.
Martin Deboo, at Jefferies, the investment bank, said the deal would “result in some red faces” around the Greencore board table, coming so soon after the Peacock deal. But he added that the disposal had “significant upside”, generating a profit of about $100 million on its decade-long investment in the US.
Russ Mould, at AJ Bell, the stockbroker, said: “One has to applaud Greencore for taking decisive action. Too often businesses retain struggling operations in the hope they will eventually improve.” True. But after fleeing from the US, how will Greencore fare as the largest player in Britain?
Mr Coveney promised to “deliver further growth and returns in the dynamic market”. However, if creating geographical diversity was desirable in 2016, it is imperative now. A no-deal Brexit looks ever more likely, which could hamper imports of fresh ingredients and chill the market. Investors delivered their own verdict yesterday, sending the shares down 18½p, or 8.9 per cent, to 189p. Until Brexit uncertainties dispel Greencore is one to sell.
ADVICE Sell
WHY After quitting the US, Greencore is overly exposed to an uncertain UK economy
Schroders
For more than 200 years Schroders has been a byword for solidity. Yes, there has been the occasional governance scuffle, most recently in 2016 when the chief executive moved into the chairman’s office. But the fund manager’s story has been one of steady returns.
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It did not deviate from the script yesterday. Despite the squalls on global markets its assets under management rose 0.7 per cent to £439 billion at the end of last month. Growth in the funds it manages for institutions more than offset a fall in those managed for retail clients. The performance was in the middle of the “pack of larger UK listed asset managers”, according to Paul McGinnis of Shore Capital, the broker. Solid but uninspiring.
This is also an apt description for the share price. Since 2013 the stock is up a bit more than a quid to £27.71 — about in line with the FTSE 100. Will the blue-blooded broker break out of this comfort zone? Peter Harrison, chief executive, is in talks to shake up its wealth management division. If he gets it right the shares could look a lot more attractive.
Schroders traces its roots back to 1804, when brothers John Henry and John Frederick Schroder joined forces in London. The Schroder family still owns 47.5 per cent of the shares, and John Henry’s great-great-grandson, Bruno Schroder, has as seat on the board as an independent director. His nephew, Philip Mallinckrodt, is also a director.
Mr Harrison is in talks over a tie-up with Lloyds Banking Group. Under the plan the lender would spin off its £13 billion wealth management division into a joint venture, in which Schroders would have a 49.9 per cent stake. Lloyds would gain 19.9 per cent of Cazenove Capital, the wealth manager bought by Schroders five years ago. Also, Schroders could end up managing £80 billion in funds for Lloyds. The tie-up would push Schroders into the “mass affluent” market of middle-class earners with cash to invest. The potential makes sense for the fund manager.
Schroders is well managed and is among the more defensive asset managers quoted in London. However, until the terms of its venture with Lloyds become clear, putative investors should sit tight.
ADVICE Avoid
WHY Wait until talks with Lloyds conclude