Premier Foods: We'll sell Quorn if the price is right
In a statement issued to the stock exchange, Premier Foods said it had "received approaches that may or may not lead to a sale of its meat-free business, including Quorn".
The firm, which recently unveiled plans to contract out production of more of its Quorn and Cauldron meat-free lines after failing to resolve "production inefficiencies", said: "The Board remains open-minded about disposals, provided they deliver shareholder value and accelerate the reduction of average net debt/EBITDA (earnings before interest, tax, depreciation and amortisation)."
Bosses would consider selling any part of the business provided that this did not diminish the capacity of the remaining business to repay debts and service its pension deficit, it added.
However, meat-free was probably the only business likely to interest multinationals such as Nestlé, although others such as Rank Hovis, RF Brookes, Avana Bakeries and Charnwood (pizza bases) might be of interest to more UK-focused firms or private equity players, said analysts.
Meat-free blues
Total meat-free sales were down 2.9% in the first half of 2010, which Premier Foods chief executive Robert Schofield (pictured) blamed on a lower level of promotional and marketing spend, although a return to growth was predicted in the second half.
Premier spent £3m last year and a further £1m in the first half of this year on "supply chain restructuring initiatives" at its facility in Methwold, Norfolk, where some Quorn products are packaged and the Cauldron Foods range is manufactured.
Quorn was the jewel in Premier's crown, noted Shore Capital analyst Clive Black. "However, an amalgam of production issues, leading to the eventual outsourcing of activity, and decelerating market growth has taken the shine off Quorn to our minds and so its potential exit multiple."
If selling off assets such as Quorn does not reduce the millstone's around the company's corporate 'neck', "that is, if disposals cannot be undertaken that do not materially dilute earnings per share and/or eat into the structural debt, then we may yet see another deep discounted equity issue to bolster the balance sheet, perhaps with further senior management change", predicted Black.
What future for Premier?
Robert Schofield in particular has faced mounting criticism from City analysts as the firm's share price has continued to drop.
However, analysts had hoped that two new additions to the Board - non-exec chairman Ronnie Bell and non-exec deputy chairman Charles Miller Smith, who joined on Friday - could inject new urgency into the business before refinancing issues loomed large again.
Investec analyst Martin Deboo has outlined four possible scenarios for Premier: ‘Freefall’ – in which trading continued to decline and no action was taken to sell assets or change the senior management; ‘Zombie Company’ – in which “trading flatlines but Premier stays within its covenants”; ‘Rapid takeout’ – in which Premier’s low valuation flushed out a financial or strategic buyer (private equity or possibly Associated British Foods); and finally, ‘Turnaround’ – in which management was overhauled, trading improved and disposals were made “at decent prices”.
