Premier Foods cuts debt with Quorn division sale

 
City A.M. Reporter
Premier Foods, the UK’s largest food producer, has agreed to sell its meat-free business for £205m to cut its debt.

It has agreed to sell the unit, which includes its range of Quorn vegetarian products and Cauldron meat-free sausages, to Exponent Private Equity and Intermediate Capital Group.

But the company, which makes Bisto gravy and Branston pickle, also said it is prepared to make further disposals if the price was right as it reduces a debt pile that had soared to £1.37bn by June last year.

"There's nothing in my portfolio that I'm saying is non-core, for sale, but I am open-minded to disposals," said Chief Financial Officer Jim Smart in a telephone interview.

Premier Foods’ shares rose by 5.68 per cent to 23.61p at 8:53am before falling back to 22.07 by the afternoon.

The disposal is designed to help reduce Premier’s debt as a proportion of earnings, but analysts expressed doubt at the choice of disposal.

"It (the sale) is positive in that it reduces the debt, the leverage in the business, but you could argue that Quorn and meat-free was one of the growth areas of the business and that they're having to sell the family silver," said Shore Capital analyst Darren Shirley.

Smart said Premier, which in November confirmed it had also received approaches for its canning operations, was focused on reducing its debt and it could pursue further asset sales if they would help bring it closer to its target debt level.

"If there are other people interested in other bits of the business we're open-minded ... but it would have to be full compensation for our shareholders and it would have to be at a ratio which would make some further contribution to reducing that debt-to-earnings before interest, taxes, depreciation and amortisation (EBITDA) ratio."

Analysts at JP Morgan Cazenove said Premier Food's ability to cut its debt remained a key concern for the market.

"Our view remains that if it were to convince the market it can reduce its debt, there could be considerable upside to the shares given the leverage to the equity valuation," the broker said in a note.

Shares in Premier have risen 24 per cent since 3 December when it confirmed it was in advanced talks with two parties regarding the sale of Quorn, with one of the suitors believed to be the world's biggest food group Nestle.