Premier Foods sells 10% stake to the US

Mar 6 2009 by Iain Laing, The Journal

HOVIS to Oxo cubes firm Premier Foods is selling a 10.3% stake to a US private equity company under plans to raise £379m from shareholders.

Debt-laden Premier, which owns Marlow Foods on Teesside, said Warburg Pincus – which will have the right to a board seat and could follow up its £64m investment with further share purchases – would be a “long term, engaged investor”.

The firm had net debts of £1.77bn at the end of 2008 and will use the cash to pay off some loans and restructure its borrowings.

It has also extended banking facilities until December 2013 to give it more financial headroom.

Shares in Premier jumped 18% as investors welcomed the company’s balance sheet strengthening. Underlying pre-tax profits came in at £193.8m – 13% ahead of 2007 and slightly ahead of expectations.

Premier was saddled with the debt after mergers with RHM and the UK arm of Homepride company Campbell’s Soup in recent years, although chief executive Robert Schofield said he was pleased with the St Albans based firm’s underlying trading performance. “One of the most pleasing aspects of the business in 2008 is how robust trading has been during a tough period for consumer-facing businesses,” he said.

The relaunch of Hovis bread, the group’s biggest brand, helped lift the product’s market share since last August.

The bread business lifted trading profits to £20.9m over the year, while revenues also rose as the company recovered higher wheat and energy costs.

Current trading is in line with expectations, but Mr Schofield warned food inflation remained a concern in the business due to the impact of a weaker pound.

But the company is still pressing ahead with a £35m investment on Teesside as it revealed strong growth forecasts for its Quorn brand. Peter Banks, commercial director of Marlow Foods, a £130m turnover company which was bought by Premier Foods in 2007, has forecast sales growth of at least 12% for the UK and higher on the Continent.