Rank Hovis sale should be considered, says analyst

Premier Foods should consider selling its milling business Rank Hovis to drive down its £1.2bn debt, a leading City analyst has argued.

The comment follows the firm's announcement, on 6 July, that it would sell its Elephant Atta ethnic flour business to rival Associated British Foods' (ABF) Westmill Foods subsidiary, for a cash consideration of £34m. It includes the Elephant Atta, Elephant Chakki Gold and Fassal brands.

Martin Deboo of Investec Securities told British Baker that the sale of Rank Hovis to one of the UK's other milling players would be a more interesting option that would complement its refinancing package. "To my mind it is quite a separable business, so it would have to be sold with a supply agreement back to the remaining Hovis bread business," he added. "But I would have thought that is a deal that could be done on paper."

Premier Foods refused to comment on a prospective sale of its Rank Hovis business. A company spokesperson said: "The ethnic flours business represents less than 1% of Premier Foods' group sales and the impact on its Southampton mill will be very small. The company will continue to manufacture the Elephant Atta products at the site under the terms of a co-packing agreement for an initial period of up to 12 months.

"Only one employee from the commercial part of the business has transferred to Westmill Foods as part of the sale," said Premier.

Deboo added: "Mr Kipling and Hovis are power brands, so Premier Foods would not entertain the sale of those. However, in my view, the company's position is sufficiently parlous. The firm should sell any brand for an offer that is the equivalent to seven-times EBITDA. It has to take down its debt level and, therefore, it cannot afford to be too scrupulous about what it does and does not sell."

In June, Premier Foods sold its vinegar and sour pickles business to Japanese firm Mizkan for £41m.

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