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Big Brands > Premier Foods

Lenders give Premier some vital breathing space; Rose's and Paxo may be up for grabs

By Jane Byrne , 13-Mar-2012
Last updated on 13-Mar-2012 at 12:35 GMT

Several private label and secondary and tertiary brands such as Paxo Stuffing are likely to be divested by Premier Foods in the coming months, claim analysts, as the UK manufacturer gets breathing space from investors.

The food group said that it has managed to obtain a re-financing package it claims will allow it "to execute its growth strategies."

Its £1.2bn (€1.43bn) banking facilities have been extended to June 2016, and its pension trustees have agreed to defer deficit contributions until 2014, giving Premier, said market watchers, some time to make further disposals and improve trading.

Clive Black, analyst with Shore Capital, said he is still reasonably guarded about Premier’s future performance given the lack of transparency over expected trade drivers, and how its long-term debt reduction plan is going to pan out as well as the minimal comment in recent times on its divestment programme.

“However, this opacity on its trading position is not surprising given the on-going negotiations it has been conducting with 28 banks. We await Premier’s full-year results, expected after the finance deal is signed off at the end of March, to get a more sound appraisal of its balance sheet,” added Black.

Likely divesture candidates

He told FoodNavigator.com that while everything outside of the eight power brands is “up for grabs”, the likely candidatures for divesture in the short-term include brands such as Paxo, Rose’s, Saxa and Atora.

“And if knock-out offers came for the power brands, management at Premier would have to seriously consider those as well,” added Black.

But, in a note on Premier’s banking deal, Graham Jones of Panmure Gordon, cautioned that further disposals by the food group would be dilutive, and he remains concerned that a further shrinking of the cash generative base of the manufacturer of brands such as Mr Kipling and Hovis will make its pension liabilities look even larger relative to the size of the group. 

UK trading conditions

Panmure is also wary about current UK trading conditions and their likely impact on Premier’s fortunes, given Associated British Foods (ABF)’s recent comments about the challenges in the UK bread sector and reports of a recent doubling in wholesale egg prices - a key ingredient for cakes among other products.

December last year saw the UK food maker sell its four Irish brands, Chivers, Gateaux, McDonnells and the Erin licence, to the Boyne Valley Group for £34.7m. The late 2011 divesture followed Premier’s earlier disposal of chilled foods division Brookes Avana to the 2 Sisters group.

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