Premier Foods Hunts New Dough For Bread Unit

By Mark Kleinman, City Editor

The owner of Hovis has kicked off a secret hunt to find an outside investor to help revive the fortunes of its struggling bread division.

Sky News has learnt that Premier Foods, the biggest manufacturer of branded foods in the country, has approached a string of private equity groups about the sale of a stake in its bread unit, which also produces own-label ranges for some of the UK's biggest supermarket chains.

Gavin Darby, Premier Foods' chief executive, is understood to have asked Ondra Partners, a mergers and acquisitions advisory firm, to lead the search for an outside investor.

A range of options is being considered by Premier Foods' management, according to insiders.

These include spinning out the bread business into an entirely separate company which would be jointly owned by Premier Foods and a new investor. Such a task would be relatively simple following a reorganisation of Premier Foods' structure which means that the bread division now has a dedicated management team and a separate headquarters in High Wycombe, Buckinghamshire.

Approximately 4000 people work across the company's bread operations - almost half of Premier Foods' total workforce - which have been saddled with stubbornly high operating costs, poor industrial relations and the loss of a number of key contracts.

It is unclear how advanced discussions are with prospective investors or which private equity groups have been approached.

Ondra's involvement comes a year after Premier Foods' previous chief executive appointed the Wall Street bank Goldman Sachs to solicit bids for the entire bread business. An outright sale is not thought to be on the agenda at the moment.

Warburg Pincus, a large buyout firm, has been a major shareholder in Premier Foods since 2009, and still owns about 17% of the company.

Last week, the group, which makes Sharwoods sauces, Angels Delight desserts, Oxo gravies and Mr Kipling cakes, said the UK wheat harvest this year had been more productive than in 2012.

"Sales in the Bread business (excluding Milling and a high cost to serve contract exited in April) were 1.5% behind the same period last year reflecting a slower start to the quarter as a result of the hotter July weather," it said.

"However, performance improved through the quarter, supported by progressively stronger customer partnerships. In particular, we are starting to benefit from substantial increases in space and distribution across both the larger supermarket and convenience formats of major customers."

Premier's bread business is understood to have secured more business from Tesco in recent months, partly offsetting the loss of a contract with the Co-op last year.

Mr Darby, a former Vodafone and Cable & Wireless executive, was parachuted into the company as it grappled with efforts to repair its balance sheet following a debt-fuelled acquisition spree.

It has sold brands including Quorn, Crosse & Blackwell and Branston Pickle to raise funds but analysts continue to believe that a rights issue or another fundraising exercise is inevitable next year.

A Premier Foods spokesman declined to comment on Tuesday.

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