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Premier Foods to operate Gores Group's Bread business

Staff writer ▼ | January 27, 2014
Premier Foods 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.
Hovis
HovisPremier Foods 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.


Premier Foods considers a joint venture to be the best way to maximize 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 30 million pounds 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 87.5 million pounds, including 28.7 million pounds of working capital that will be retained by Premier Foods.

Premier Foods and The Gores Group have further agreed to invest a combined 45 million pounds in the business in proportion to their respective holding in the form of loan notes, of which 32 million pounds 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 200 million pounds in the business over the next five years to improve its operational infrastructure and reinvigorate the Hovis brand.

t 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 10 million pounds of this line. The third party finance will be non-recourse to the Company.

The company expects the short-term cash benefits from this transaction, excluding fees, to be approximately 28 million pounds, 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.


 

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