Since the start of the month, qualifying shareholders in Greencore have been receiving letters with an offer to buy new shares based on their existing shareholding at a discounted price. Many farmers bought shares in Greencore when it floated in 1991 at a time when it was heavily involved in primary processing (sugar, malt and grain) through Irish Sugar, Drummonds and Minch Norton.

Greencore has evolved into the largest sandwich maker in the UK, with 15% of its business currently coming from the US. Last month, Greencore announced that it had reached an agreement to acquire Peacock, a US convenience food group which would transform Greencore’s market and channel position, according to CEO Patrick Coveney. This deal will quadruple the US business to about £1bn in revenues, making it more or less the same size as the company’s existing UK business.

What is the Peacock deal?

Peacock is a fast-growing US convenience food manufacturer with strong positions in frozen breakfast sandwiches, children’s chilled meal kits and salad kits, generating revenues of about $1bn and profits (EBITDA) of $72m for the year ending September 2016. This represents a multiple of 10 times earnings (EBITDA). Once synergy benefits kick in for the combined group, the deal comes in at a multiple of 8.5 times earnings.

The deal, valued at almost £600m, is to be funded by a rights issue (new shares) offered to qualifying shareholders to raise a total of £439.4m and new bank debt facilities of approximately £200m. Because of the size of the deal, it was put before shareholders at an EGM held on 7 December.

What is being offered?

Greencore proposes to raise approximately £426.6m (net of rights issue expenses) by issuing 287,203,887 (41% extra) new shares and offering them to existing qualifying shareholders.

This means that for every 13 existing Greencore shares, the rights issue will comprise nine new Greencore shares issued at £1.53 (€1.83) per share. This represents a 47.6% discount to the closing price of £2.92 per share on the date of the announcement and a 34.9% discount to the theoretical ex-rights price of £2.35 per new Greencore share.

For example, a shareholder who holds 500 shares in Greencore has the option to buy 346 additional new shares at £1.53 (€1.82), or a total of £533 (€638). The additional 346 shares have a market value of around £850 (€1,012) based on this week’s price, therefore they are discounted by about £320 (€380).

Shares in Greencore based on Tuesday’s closing price of £2.45 are trading 27% above the 52-week low of £1.93 set on 24 June, the day of the Brexit referendum result. Overall, shares are down about 10% in the past 12 months.

Next steps - three options

1 Accept the offer

Should a shareholder decide to accept the offer, the latest time and date for acceptance and payment in full is 21 December 2016.

If a qualifying shareholder takes up their entitlement to new Greencore shares in full, they will continue to have the same proportionate voting rights and entitlements to dividends as before.

2 Not accepting the offer

Should a shareholder reply that they will not subscribe for the new shares to which they are entitled, they can instead sell the rights to those shares at a price determined by the market on a given day – which is currently around £0.90/share right. They will then receive the net proceeds of each right sale in cash. If a shareholder does not take up any of their entitlements to new Greencore shares, their proportionate shareholding will be diluted by approximately 40.9%.

3 Doing nothing

If no action is taken, the shares allocated to a shareholder in the rights issue will be sold on the market after 22 December in what is called a “rump”. This means that the existing shareholder must take whatever the market price is when those share rights are sold and it could be higher or lower than the current market price (ie £0.90).