RHM re-jig ends McDonald's partnership

- Last updated on GMT

Related tags: Stock market, Pension, United kingdom

British food group RHM has confirmed it is in advanced talks to
sell its Golden West bakery, ending a troublesome supplier
relationship with fast-food giant McDonald's and streamlining the
company's focus in preparation for a possible stock market
flotation, reports Chris Mercer.

The proposed buyers, both US-based, are: Keystone Foods, for Golden West's logistics division and East Balt Guenther Bakeries for the bakery division.

McDonald's, which uses Golden West as its sole UK supplier of burger buns, has already endorsed both companies, and analysts believe RHM's owner, private equity group Doughty Hanson, is keen on a quick sale to help prepare the food firm for a stock market flotation this year.

RHM's exclusive deal with McDonald's has sometimes caused friction between the two. The fast-food chain usually likes to keep two suppliers in any one supplier region, and last year rumours surfaced in the UK's "Financial Times"​ that McDonald's was unhappy in the partnership, especially because RHM had not yet launched itself on the stock market.

Golden West supplies burger buns, tomato ketchup and soft drinks syrups to all McDonald's in the UK as well as in some areas of mainland Europe.

For RHM, the split means it will be able to better focus its efforts on improving profits through its big brands, including Hovis bread, Mr Kipling cakes and Bisto gravy. Today, the group restructuring of its four business units into three comes into effect.

The three divisions - Cakes and Customer Partnerships, Culinary Brands and Bread Bakeries - "will help us to continue to build on our focus on profitable business performance, while unlocking further opportunities for brands, customers and product synergies"​, according to RHM chief executive Ian McMahon.

The firm already ploughed £8 million into re-launching its Mr Kipling cakes brand with a more premium focus in February; reacting to higher end market growth on the UK cake sector and increasing pressure from private label.

If RHM is considering a stock market flotation in the near future then a portfolio of big brands will also clearly be a help.

But, the company also needs to sort out a £525 million pension fund deficit that may block a move for the stock market. Ironically, RHM recently blamed the deficit on falling stock markets as well as low interest rates and increased life expectancy.

Accordingly, the firm has proposed changes to its pension fund. The reforms, to be phased in between April and September this year and affecting 9,800 workers, are set to include: new pension contribution rates, new definitions of pensionable earnings, lower national insurance costs, limits to discretionary pension increases paid in retirement and limits on early retirement terms.

Amicus, Britain's largest private sector trade union, has criticised the plans, calling them "draconian"​ and alleging that RHM "plans to freeze the level of pensionable salaries, by changing the basis of pensions calculations from the pensionable salary that workers receive at retirement to their existing salary levels"​.

The union has asked its members at RHM if they wish to vote on strike action against the company.

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