Northern Foods: Biscuit Unit for Sale If Offer is High Enough

Northern Foods has stated that it may sell its Fox’s biscuit business if it received the right price. While its failed bid for Burtons Foods suggested it was serious about increasing its share in the UK biscuit market, the acquisition of UK market leader United Biscuits may have caused the company to rethink its strategy, deciding instead to offload its under-performing biscuits unit.

Northern Foods refusal to rule out the sale of its Fox’s biscuit business is further indication that it wants to focus on key growth categories. Northern Foods has already sold off a number of its unprofitable operations, including its speciality bread and chilled pastry divisions, but has, until now, appeared keen to retain its Fox’s biscuit business.

Northern Foods had originally planned to increase its 11% market share in the UK biscuit market through the purchase of Burtons Foods, but was beaten to it by private equity group Duke Street Capital. However, PAI Partners and Blackstones’ joint purchase of United Biscuits, the UK market leader, may have alerted other European players to acquisition opportunities in the UK market. This in turn may increase the chances of a European company offering an attractive price for the Fox’s business. Northern Foods itself may have recognized the potential heightened interest in the division, and, given the attractive price paid for United Biscuits, may have prompted the company’s decision to announce that it could be sold if “an extremely high offer” was received.

Datamonitor forecasts that the savoury biscuit market in Europe will have a CAGR of 3.0% between 2000 and 2010, while the sweet biscuit category is expected to post a CAGR of 2.7%. In comparison, the UK savoury biscuit market is forecast to grow at a slower rate, with a CAGR of 2.7% between 2000 and 2010, while the sweet biscuit market is predicted to record a CAGR of 0.9%. Northern Foods’ decision last year to sell its European distribution arm is likely to restrict its growth in the more attractive European markets, with the company instead having to outsource distribution in Europe, leading to an increase in costs. This has added further fuel to the rumours that Northern Foods is looking to sell off the biscuit unit.

Northern Foods’ refusal to rule out the sale of its biscuit division appears to be a wise move given the relatively limited growth potential of the business. Northern Foods may feel however, that, while the biscuit unit is still profitable, albeit only marginally, it provides the company with another source of revenue, and is therefore unlikely to offload the business for a cut-price. Yet, any bid valuing the biscuit division at a high price would provide Northern Foods with a useful revenue source, which the company could reinvest in key growth categories.