27th Jan 2014 07:55
LONDON (Alliance News) - Premier Foods PLC Monday said it will spin off its bread business into a new joint venture with The Gores Group, and use the GBP28 million in cash inflows it receives to invest in its grocery business.
In a statement, the food company said it will own 49% of the new joint venture. Premier and Gore will jointly invest GBP45 million in cash into the venture, which Premier said would unlock a GBP200 million five-year investment programme for the Hovis bread brand.
The deal gives Premier's bread business an enterprise value of GBP87.5 million.
The Gores Group is paying GBP30 million for its 51% stake in the venture, of which GBP15 million is deferred and contingent on the future performance of Hovis Ltd.
Premier said the investments in its grocery business will focus in 2014 on expanding the capacity of its cakes business, specifically spending GBP20 million on a new Snack Pack cake slice line at the company's manufacturing site in Carlton, Barnsley.
The new joint venture will include the Hovis, Mothers Pride, Ormo, Granary and Nimble brands. Premier will retain the McDougall's flour brand, but will supply the joint venture with flour.
Premier and Gore have agreed not to sell any stakes in the venture for at least three years after completion of the deal, expected to take place in the second quarter of this year.
Premier also said its expects its 2013 trading profit to meet market expectations. It said sales of its so-called grocery power brands rose 2.0% overall, although they fell 2.0% in the fourth quarter due to high levels of promotional activity in the sector.
Sales of so-called support brands like McDougall's flour, Bird's and Angel Delight rose 1.0% in the fourth quarter. Hovis sales were up 5.3% in the quarter.
It said its net debt will be down about 10% from the end of 2012, also in line with expectations.
"As previously stated, the board continues to review the full range of options available to the company regarding its future capital structure," it added.
By Steve McGrath; [email protected]; @SteveMcGrath1
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