Greencore says it will be “more resilient” to Brexit after exiting the US, following the £817m sale of its US arm to Hearthside Food Solutions.
The own-label sandwich producer dismissed accusations its US expansion had been a failure, as it exited North America less than two years after committing to the region with the £594m acquisition of Peacock Foods.
CEO Patrick Coveney said Greencore would be “strengthened” by the sale, but with the share price falling 5% to 198p this week, Jefferies analyst Martin Deboo said the move would have left “red faces” in Greencore’s boardroom.
“The US division disposal isn’t entirely surprising given how it has struggled for several years,” added AJ Bell analyst Russ Mould.
After the Brexit referendum, Greencore more than doubled the size of its US operations with the acquisition of East Coast-based ready meals and food to go specialist Peacock for £594m, a move that was seen at the time as an attempt to tap into growth markets while limiting its exposure to the UK.
But the loss of a contract with Starbucks among others, and slower-than-expected new business wins led to a company profit warning in March 2018, which saw Greencore lose a third of its share value overnight, forcing Coveney to spend half his time in the US, running the business directly.
Coveney said the sale was driven by a desire to “crystallise” value for shareholders, instead of hoping for growth amid Brexit uncertainty.
The supplier also told The Grocer it was looking at stockpiling non-fresh products amid fears of a no-deal scenario.
This week Greencore set out plans to use sale proceeds to strengthen its balance sheet by reducing leverage by £293m and to offer a shareholder dividend totalling more than £500m.
“In the near term, we will be stronger because this gives us a very resilient balance sheet with a lower level of leverage than we’ve had at any point since I’ve been CEO,” said Coveney.
The deal, which still requires approval from shareholders, is set to close by late November. Greencore was advised by Goldman Sachs and Greenhill, while HSBC and Barclays acted for Hearthside.
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