Leading food manufacturers Greencore and Northern Foods have agreed on the terms of a recommended merger, which would see the creation of one of the largest convenience food businesses in the UK and Ireland.

The combined group, to be known as Essenta Foods, would have annual sales of around £1.7bn, and expected cost synergies of around £40m. Greencore and Northern Foods shareholders would each hold approximately 50% of the shares.

According to the boards at both firms, the benefits of the merger include the combining of their significant positions in the manufacture of products such as pizzas, pies, selected cakes and desserts, as well as a combined portfolio of strong brands.

The Board of Directors of Essenta Foods will be drawn equally from the boards of Greencore and Northern Foods. Anthony Hobson, current chairman of Northern Foods, will become chairman of Essenta Foods and Ned Sullivan, current chairman of Greencore, will become deputy chairman.

Patrick Coveney, current chief executive officer of Greencore, will become chief executive officer of Essenta Foods and Simon Herrick, currently chief financial officer of Northern Foods, will become chief financial officer.

Since the announcement this morning, Greencore’s share price has increased 28.85%, while Northern Foods’ has risen 24.31%.

The merger is expected to be complete in the second quarter of 2011.