We’re hungry for more from bid target Bakkavor

Bakkavor (BAKK) 170p
Gain to date: 13%
Shares highlighted Bakkavor’s (BAKK) attractions at 150.5p on 13 March, urging investors to buy the chilled prepared-food manufacturer for its cash generation, defensive qualities and positive trading momentum.
We noted the private label pizza-to-hummus maker was rebuilding margins and reducing debt levels, a tasty combination which could drive a further re-rating of the stock.
Bakkavor, we noted, was well-positioned should consumers cut back on dining out and spend more on food products which can be consumed at home, and could treat investors to additional forecast upgrades.
WHAT HAS HAPPENED SINCE WE SAID TO BUY?
Our ‘buy’ call delivered a quick win with Bakkavor’s shares surging on the revelation (14 March) the ready meals-to-dessert maker had rejected two takeover offers from rival Greencore (GNC).
Pitched at 189p, a 25% premium to the undisturbed share price, the latest offer was spurned by Bakkavor on 10 March on the grounds it ‘significantly undervalued the company and its future prospects’.
Under Greencore’s sweetened proposal, its shareholders would own roughly 59.8% of the enlarged group with Bakkavor shareholders holding sway over 40.2% of the equity.
Greencore says it has identified scope for ‘substantial synergies’ resulting from a combination which would create a leading UK convenience food business with annual revenue of £4 billion and ‘strong commercial relationships and market-leading capabilities in attractive segments across the UK convenience food landscape’.
Greencore also said it would continue to evaluate all strategic opportunities, including Bakkavor, but ‘there can be no certainty that a firm offer will be made’.
WHAT SHOULD INVESTORS DO NOW?
Investors who followed our advice might be tempted to sell shares in the market and lock in a quick 13% profit, but in doing so they could miss out on a much-improved offer from Greencore or even a bidding war, since Greencore is unlikely to be the only potential suitor to have spotted Bakkavor’s attractions.
Even if a takeover fails to materialise, Bakkavor offers tasty upside as a standalone business given its scale, close partnerships with retail customers and its long-run potential in the high-growth markets of China and the US. Keep buying.
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