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Greencore no longer world's biggest sandwich maker after $1bn US exit

sandwich
sandwich

Greencore is to lose its crown as the world’s biggest sandwich maker after striking a $1bn (£817m) deal to sell its US arm.

Illinois-based Hearthside made an “unsolicited approach” at the end of August to buy the unit, chief executive Patrick Coveney revealed, adding: “[It is] an incredibly high price for a business of this type.”

Mr Coveney said that the FTSE 250 company had not intended to exit the US, having taken steps to turn its business there around after enduring a “difficult end of 2017 and start of calendar year 2018”. This shake-up meant “we were on a very good trajectory and had no plans whatsoever to sell”, he added.

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“You can never say never, but I don’t think you will find anybody who could argue that an external process could have generated a greater price,” he said.

Greencore makes around half of all sandwiches on Britain’s high streets. Following the sake of its US arm it will return £509m in cash to shareholders via a 72p one-off special dividend as it refocuses on the UK market. The remaining proceeds will be used to pay down debt.

Markets reacted negatively, however, with around £150m wiped off Greencore’s market value. A number of hedge funds, led by Marshall Wace, booked a multimillion-pound paper profit from betting against the company’s fortunes.

Nevertheless Mr Coveney insisted that the company had received plenty of positive feedback from shareholders. He said: “Without exception the feedback is: ‘This is a good deal, well done’."

Greencore makes more than 700m sandwiches in the UK a year and a similar amount again in the US. It is headquartered in Dublin and employs approximately 14,500 people.

The company entered the US in 2008 but found it difficult to expand the business to any scale. It purchased US frozen sandwich maker Peacocks in 2016 for £594m with a view to quadrupling its sales in the country, but earlier this year issued a profit warning after revealing a catalogue of problems. It was forced to halt the production of fresh food at its Rhode Island site and announced the departure of US boss Chris Kirke.

Greencore store - Credit: Ben Birchall/PA
Greencore makes around half of all sandwiches at brands on Britain’s high streets Credit: Ben Birchall/PA

Martin Deboo of Jefferies said the transaction had a “significant upside” to the UK market, even though the backtrack may result in “some red faces”.

“In cash terms, Greencore recovers its entire cumulative investment in the US to date, plus a small profit,” he said.