Premier Foods is to split off its bread business, which includes the Hovis brand, as a separate joint venture with US company The Gores Group.
Trading under the name Hovis Limited, the bread operation is set to receive a £200m five-year investment programme designed to improve efficiency and reinvigorate the Hovis brand. Value sales of Hovis bread fell 8.4% last year to £368.3m in a total bread market up 1.2% [Nielsen 52 w/e 18 October 2013].
The Gores Group will pay £30m for a 51% controlling stake, with Premier retaining 49% in the operation, which has been valued at £87.5m, as well as responsibility for the RHM Pension Scheme.
“I’m delighted we’ve found a strong partner in The Gores Group who will help provide the investment necessary to develop the bread business”
Gavin Darby
For the year ending 31 December 2013, unaudited results of the bread business showed sales of £654.6m, divisional contribution of £27.8m, trading profit of £6.3m and EBITDA of £21.9m.
The deal is subject to approval by Premier shareholders and the agreement of lenders and pension scheme trustees, as well as competition approval from the European Commission. It is expected to complete during the second quarter of 2014.
Premier Foods will receive a £28m cash injection from the deal that it plans to invest in the grocery business, including the previously announced £20m spend on a new snack pack cake slice line at its factory in Carlton, Barnsley.
“This is exciting news for the bread business and a great deal for Premier Foods,” said Premier CEO Gavin Darby. “We can now focus our attention and resources on developing our grocery brands.
“I’m delighted we’ve found a strong partner in The Gores Group who will help provide the investment necessary to develop the bread business. A joint venture arrangement also means we will share in the future gains from this investment as the business continues its return to profitable growth.”
The Gores Group MD Fernando Goni said there was untapped potential in the bread brands. “We are confident in the abilities of the talented management team to drive value for all stakeholders,” he said.
Joint venture terms
The joint venture will be led by Bob Spooner, currently Premier’s MD for bread and the company’s supply chain director, and all baking, milling and associated head office employees are expected to transfer to Hovis Limited. Spooner will become CEO for Hovis Limited and will join the board of the joint venture alongside Premier’s Darby and CFO Alastair Murray, two members nominated by The Gores Group and an independent chairman.
With the exception of its Charnwood Foods facility in Leicester and a flour mill in Andover, Premier’s entire operational bakery and milling estate, associated distribution network and assets will transfer to the joint venture, including the bread business HQ in High Wycombe.
Production, distribution, sales and marketing of bread brands Hovis, Mothers Pride, Ormo, Granary and Nimble will also transfer to Hovis Limited, as will the private-label bread business, business-to-business sales and the flour milling business.
Premier will retain the McDougall’s brand for use in retail and some foodservice sales of flour and bread mixes and will license the Hovis brand for retail and business-to-business sales of flour and mixes. Premier will enter into a long-term mutual supply agreement with the joint venture for flour, and will provide necessary central support services.
Premier and The Gores Group have committed not to sell their respective shares in the joint venture for at least three years from completion of the transaction.
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