UK food group Greencore to buy rival Bakkavor in $1.6 billion deal

(Reuters) -Convenience food manufacturer Greencore on Wednesday agreed to buy rival Bakkavor in a deal valued at 1.2 billion pounds ($1.55 billion), to create a convenience foods giant in Britain.

Greencore has offered to buy Bakkavor for 200 pence per share in a cash and stock deal, after being rebuffed twice, at a premium of nearly 6% to its last bid of 189 pence.

Bakkavor shares rose nearly 8% to 192 pence, while pre-packed sandwich maker Greencore fell nearly 3%.

Bakkavor's retail customers include Tesco, M&S and Waitrose, while Greencore supplies all major UK supermarkets.

"We are encouraged that a route forward has been found in relatively short order, and are increasingly warming to the value of a Greencore/Bakkavor combination," said Jefferies analysts in a note.

Under the terms of the deal, Bakkavor shareholders will receive 85 pence in cash and 0.604 Greencore shares per Bakkavor share.

Strong demand for pre-packaged convenience food have boosted Greencore's growth in recent years, however increased payroll and employment costs have proven to be an overhang for the Ireland-based company.

Shareholders of Bakkavor, which operates in Britain, China and the United States, will also be entilted to a contingent value right if its U.S. business is disposed before June 30, 2026.

The company has been reshaping its U.S. business after cost-overruns and a subdued consumer market led to reduced volumes in the region.

The latest bid will be unanimously recommended by the companies and will see Bakkavor founders Agust Gudmundsson and Lydur Gudmundsson, joining the combined group's board as non-executive directors.

($1 = 0.7746 pounds)

(Reporting by Yamini Kalia in Bengaluru; Editing by Mrigank Dhaniwala and Louise Heavens)