FDBusiness.com

Premier Foods has obtained competition approval from the European Commission in relation to its agreement with The Gores Group to operate its bread business as a stand-alone joint venture which will trade under the name of Hovis Ltd. The new arrangement will facilitate a significant increase in investment in the business both to improve the efficiency of its operational infrastructure and to reinvigorate the Hovis brand, building on its strong heritage.

The Gores Group will pay £30 million for a 51% controlling stake in the joint venture, of which £15 million is deferred and contingent on future business performance. As a result, the transaction values the Bread business at an enterprise value of £87.5 million, including £28.7 million of working capital that will be retained by Premier Foods. Premier Foods and The Gores Group have further agreed to invest a combined £45 million in the business in proportion to their respective holding in the form of loan notes, of which £32 million will be provided on completion of the transaction.

This investment, together with external financing and cash flow from the business, will be used to fund the joint venture’s plan to invest approximately £200 million in the business over the next five years to improve its operational infrastructure and reinvigorate the Hovis brand. It is expected that the joint venture will also be supported by a stand-alone credit facility for its ongoing working capital requirements with effect from the completion of the transaction. Under certain circumstances, Premier Foods can be called upon to provide up to £10 million of this line.

The joint venture transaction is expected to complete by the end of April 2014.