Premier Foods agrees joint venture to ‘strengthen’ Hovis brand

Hovis is to become a stand-alone joint-venture between owner Premier Foods and US private equity firm Gores Group in a multi-million pound deal that will allow the former to focus on grocery brands such as Ambrosia, Batchelors and Mr Kipling.

The Hovis brand will be run as a stand-alone business from the second quarter of 2014.

The deal sees the food maker cede control of its flagship brand with the private equity business paying £87.5m for a 51 per cent stake. Premier and Gore will jointly invest £45m in cash into the venture, which will support a £200m five-year investment programme for the brand.

The grocery company’s managing director for bread Bob Spooner will lead the newly spun off Hovis Ltd business. The Hovis marketing and sales teams will also transfer over to the division and assume additional responsibility for Premier’s smaller Mothers Pride, Ormo, Granary and Nimble brands.

Additionally, both companies will enter into a licensing deal that sees the Hovis name extended to flour and bread mixes.

Premier says the deal would allow it to invest £28m in its grocery business as it looks to accelerate sales of its so-called power brands. The food manufacturer adds investments in 2014 will focus on expanding its cake business, specifically ploughing £20m into launching a new Snack Pack cake slice later in the year.

The company revealed sales of its top brands rose 2 per cent in 2013, although they fell by 1 per cent in the fourth quarter with the business blaming high levels of promotional activity over the festive period. Sales of its smaller brands such as Bird’s and Angel Delight rose 1 per cent in the quarter, while Hovis sales jumped 5.3 per cent over the same period.

Gavin Darby, chief executive of Premier Foods, says: “This is exciting news for the bread business and a great deal for Premier. We can now focus our attention and resources on developing our category leading grocery brands.

“A joint venture arrangement also means we will share in the future gains from this investment as the business continues its return to profitable growth, helping us maximise value creation. Both parties are excited by the opportunities this transaction brings.”

News of a possible spin-off for Hovis first came to last light November when Premier admitted it was exploring a range of options to save its struggling bread business.

It is the latest attempt by Premier to pay down its debt of £890m which has seen it restructure its marketing unit and sell off underperforming brands in recent years.

Premier and Gore have agreed not to sell any stakes in the venture for at least three years after completion of the deal, which is expected to be concluded in the second quarter of this year.