Premier Foods forced to sell controlling stake of Hovis to US Gores Group as it struggles under debt mountain
Mr Kipling maker Premier Foods has been forced to sell control of its Hovis bread business after struggling to find enough cash to grow the bakery division.
The heavily-indebted firm, whose debts peaked at £1.82billion, has been busy selling off brands since its doomed acquisition of Bisto maker RM at the top of the market in 2007 by a different management team.
It has now added Hovis to that list, selling a 51 per cent stake to Los Angeles based private equity firm The Gores Group and forming a joint venture to grow the business.
Big slice: Premier Foods sold a 51 per cent stake in Hovis to based private equity firm The Gores Group
Premier had split itself into two divisions, the ambient foods divisions which includes Oxo and Ambrosia creamed rice, and baking which also included flour.
The market for bread has been tough due to fierce competition and profit margins described as thinner than a slice of Melba toast.
Premier chief executive Gavin Darby had been charged with attempting to turn around the fortunes of Hovis, and had committed to keeping the brand, which is one of the group’s key power products. The firm will now be focused on so called ambient foods.
Analysts say the deal is an intelligent move which gives Premier a short term cash boost of around £28million and brings in a third party to invest extra cash in bread. It also gives Premier a slice of any growth Hovis generates in the future.
The £28million will be used to grow the cake business, with a new production line focused on Snack Pack cake slices at its Barnsley factory. The pair will invest £45million in Hovis which will take the amount of investment up to £200million over the next five years.
Darby said: ‘This way I can invest in both and bring in new money.
‘Without it I was faced with a trade-off where I would have been under investing in one.’
Premier Foods (down 1.50p to 142.25p) continues talks with its lenders over restructuring net debt which currently stands at £850m.
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