PREMIER Foods has struck a deal to spin off its struggling Hovis bread business into a new joint venture controlled by US billionaire investor Alec Gores, ending 125 years in British hands.
The group confirmed yesterday that private equity firm Gores will pay £30m for a 51 per cent controlling stake, ending months of speculation about the future of the bread unit which has faced intense competition from branded and private label firms.
Both sides will inject a further £45m “to reinvigorate the Hovis brand” and to unlock £200m of investment in the new standalone venture renamed Hovis Limited over the next five years.
The deal gives the bread division an enterprise value of £87.5m, including £28m that will be kept by Premier as working capital to invest in its core grocery business.
“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,” Premier boss Gavin Darby said.
Premier, which also owns Ambrosia, Bisto and Mr Kipling, has sold off a number of assets in recent years such as Branston’s range of pickles and Robertson’s jam to help pay down debts, which now stand at £890m.
Its bread unit, which also produces own-label ranges for supermarkets, has undergone a major restructuring after losing a number of contracts, closing three bakeries and two mills.
WHO IS GORES GROUP?
Gores Group, the LA-based private equity outfit, is little known outside of the United States but it has stolen a march on better known rivals to land the bread maker. Its primary focus is buying tech firms – about 30 of the 80 or so firms it has owned since 1987 have been technology companies. The group, which manages $3.4bn in cash for investors, was founded and is led by Alec Gores, a self-made billionaire who made his riches from a business software company he set up in 1978. The move into the bread business is less unusual than it looks. The company has offices on Conduit Street in London, which scopes out opportunities in Europe, and focuses on businesses which need operational improvements. Its acquisition deals in Europe are often by M&A managing director Fernando Goni. The deal announced yesterday is the company’s third investment in the UK after it bought BrandRex in 2005, which it later sold in 2008, and Anker Group in 2004, which it also sold. The deal will see the creation of a special purpose vehicle called Hovis Ltd, which will be controlled by Gores. It will pay £15m upfront and a further £15m contingent on future performance to take control of the firm.