The development of a joint venture business could “reinvigorate” the Hovis brand, according to a City analyst.
The decision by Premier Foods to sell a 51% stake in its bread business – including the Hovis brand parts of its milling operation – was broadly welcomed in the City, but the move was not unexpected.
It followed months of speculation about Premier Foods, which is heavily laden with pension debts, and Hovis will now be part run by The Gores Group, the US private equity investor.
Nicola Mallard, analyst at Investec, said: “This deal should be helpful for sentiment. The market was pretty much discounting the value of Hovis – at the very least, this deal should stabilise the brand and could potentially build its future value. It also allows the management to focus fully on the core grocery business.”
She added: “No real surprises in the Gores deal. It results in some modest cash inflow for Premier today, but potentially more in the future if the brand can be reinvigorated, as is the plan here. Trading is also confirmed in line with expectations.”
Mallard said Investec would be reforecasting its predictions for Premier Foods.
As part of the deal, Premier will be left with £28m in cash – but for more information on the figures see British Baker’s infographic on the deal here:
Regarding the £28m, Mallard said: “This deal is not about ‘cash in’. It is more an intention to reinvigorate Hovis – the plan is to invest £200m over the next five years. Premier will benefit from any upside in the brand that comes from this, via its 49% stake.”