Premier Foods Reaches Agreement On Bread Joint Venture With Gores Group
28 Jan 2014 --- Premier Foods announces it has reached a conditional agreement with The Gores Group to operate its Bread business as a stand-alone joint venture which will trade under the name of Hovis Limited.
The new arrangement will facilitate a significant increase in investment in the business both to improve the efficiency of its operational infrastructure and to reinvigorate the Hovis brand, building on its strong heritage. Premier Foods considers a joint venture to be the best way to maximise value in the Bread business through securing new investment and retaining the opportunity to share in the expected future gains from this investment as the business continues its return to profitable growth. The transaction will additionally enable the Company to strengthen its position in the ambient Grocery market through focusing its full attention and resources on continuing to grow its category leading Grocery brands.
Under the terms of the agreement, The Gores Group will pay £30m for a 51% controlling stake in the joint venture, of which £15m is deferred and contingent on future business performance. As a result, the transaction values the Bread business at an enterprise value of £87.5m, including £28.7m of working capital that will be retained by Premier Foods. Premier Foods and The Gores Group have further agreed to invest a combined £45m in the business in proportion to their respective holding in the form of loan notes, of which £32m will be provided on completion of the transaction.
This investment, together with external financing and cash flow from the business, will be used to fund the joint venture’s plan to invest approximately £200m in the business over the next five years to improve its operational infrastructure and reinvigorate the Hovis brand. It is expected that the joint venture will also be supported by a stand-alone credit facility for its ongoing working capital requirements with effect from the completion of the transaction. Under certain circumstances, Premier Foods can be called upon to provide up to £10m of this line. The third party finance will be non-recourse to the Company.
The Company therefore expects the short-term cash benefits from this transaction, excluding fees, to be approximately £28m, which it intends to invest in its core Grocery business. Specifically, it is intended that capital expenditure in 2014 will be predominantly focused on improving capacity in the cake business including the investment of approximately £20m in a new Snack Pack cake slice line at the Company’s manufacturing site in Carlton, Barnsley.
The transaction is subject to approval by Premier Foods’ shareholders and obtaining relevant consent/waivers from Premier Foods’ lenders and pension scheme trustees, as well as competition approval from the European Commission. The transaction is expected to complete during the second quarter of 2014.
For the year ended 31 December 2013, unaudited results of the business which will comprise the joint venture were as follows: sales of £654.6m, Divisional Contribution of £27.8m, Trading Profit of £6.3m and EBITDA of £21.9m. The gross assets of the business entering the joint venture were £240.6m as at 31 December 2013. Following the completion of the transaction, the Company will reflect the joint venture as a minority interest in its financial statements.
Commenting on the transaction, Gavin Darby, Chief Executive Officer of Premier Foods, said:
“This is exciting news for the Bread business and a great deal for Premier Foods. We can now focus our attention and resources on developing our category leading Grocery brands.
“I’m delighted that we’ve found a strong partner in The Gores Group who will help provide the investment necessary to develop the Bread business. This will be good for our customers, our employees and all those connected with the 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, helping us maximise value creation. Both parties are excited by the opportunities this transaction brings. ”
Fernando Goni, Managing Director at The Gores Group, said:
“We are excited to partner with Premier Foods to revive the Hovis brand and spearhead re-investment across the Bread business. We believe there is significant untapped potential in such a well-loved, household name and are confident in the abilities of the talented management team to drive value for all stakeholders. The Gores Group has a rich history of working alongside corporate partners to unlock latent value in divisions that require operational and commercial improvement and, as such, we are convinced that Hovis offers a perfect fit for our unique capabilities.”
The joint venture will be led by Bob Spooner, who will become Chief Executive Officer upon completion. Bob is currently Managing Director Bread and Group Supply Chain Director for Premier Foods and was responsible for leading the first stages of the restructuring of the Bread business over the past 18 months. Bob will be a member of the Board of Directors for the joint venture which will include five additional directors: two nominated by Premier Foods, two nominated by The Gores Group and an independent Chairman to be appointed by the joint venture partners. Gavin Darby and Alastair Murray (respectively CEO and CFO of Premier Foods) will be the first Directors appointed by Premier Foods to the joint venture Board.
