The deal – announced today (January 27) – will result in the food manufacturer retaining a 49% stake in the business. The partnership is expected to generate a a short-term cash inflow to Premier Foods of about £28M, which will be invested in its grocery business.
The bread business will operate as a stand-alone joint venture, which will trade under the name of Hovis Limited. The firm said a joint venture was 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”.
At the beginning of last month, FoodManufacture.co.uk predicted Premier Foods may have to settle for a joint venture for its Hovis bread business if it failed to find an outright buyer.
Category-leading brands
Premier Foods added that the deal will allow it to strengthen its position in the ambient grocery market through focusing its full attention and resources on continuing to grow its category-leading brands.
Gavin Darby, ceo Premier Foods, claimed the partnership was a great deal for the firm. “We can now focus our attention and resources on developing our category leading grocery brands,” said Darby.
“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, md 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.”
Led by Bob Spooner
The joint venture will be led by Bob Spooner, who will be appointed ceo upon its completion. Spooner is currently md bread and group supply chain director. He was responsible for leading the first stages of the restructuring of the Bread business over the past 18 months.
Hovis Limited will be managed by a board of directors for the joint venture which will include five additional directors. Two will be nominated by Premier Foods, two nominated by the Gores Group and an independent chairman to be appointed by the joint venture partners.
Darby and Alastair Murray, chief financial officer of Premier Foods, will be the first directors appointed by Premier Foods to the joint venture board.
Today’s announcement follows FoodManufacture.co.uk’s report earlier this month linking Premier Foods to the Los-Angeles-based private equity firm run by Alec Gores.
Leading City analysts gave a mixed reception to news of the joint venture.