FDBusiness.com

In line with its strategy to maximise value and efficiencies from its grocery infrastructure, Premier Foods has reached a conditional agreement with Specialty Powders on a stand-alone joint venture to process and pack powdered beverages and desserts at Premier Foods’ Knighton facility in Staffordshire.

The new joint venture, to be named Knighton Foods, will combine dry powders manufacturing capabilities and assets from both parties at the Knighton site enabling cost synergies and scale efficiencies from greater utilisation of the facility. The agreement will also enable the transfer of two production lines from Knighton to Premier Foods’ manufacturing plant in Ashford, Kent, resulting in significant further efficiencies in Premier Foods’ broader Grocery manufacturing infrastructure.

Gavin Darby (pictured), chief executive of Premier Foods,comments: “This innovative agreement will help to improve the efficiency of Premier’s Grocery infrastructure and, at the same time, allows us to benefit from a dedicated team with expertise that can support our powdered beverages and desserts business. I’m delighted that, in Specialty Powders, we’ve found a highly successful, entrepreneurial partner who is committed to growing the combined business. This is a very positive development both for Premier Foods and for our employees at Knighton.”

Mike Kirby, majority shareholder and group managing director of Specialty Powders, says: “This is a fantastic opportunity for both parties. Knighton Foods will have a strong focus on dry powder products with the ability to invest in new processes, products and packaging formats. Our combined technical expertise and manufacturing capabilities will ensure that we continue to deliver high quality products for our customers and consumers, and enable us to develop a successful, broad-based powder processing and packing business for the future.”

Under the terms of the agreement, Specialty Powders will contribute its wholly-owned businesses, Phoenix Foods and Agglomeration Technology, to the joint venture, in consideration for a 51% controlling stake and a loan from the joint venture to repay its existing debt. Premier Foods will contribute the Knighton site and assets (other than the two production lines that will be transferred to Premier Foods’ site in Ashford) to the joint venture, together with its private label and business-to-business sales of powdered beverages and desserts, in consideration for a 49% stake in the joint venture and a promissory note of a principal amount equal to the loan to Specialty Powders. Premier Foods will retain the substantial majority of its branded sales currently made at Knighton, including under the Bird’s, Angel Delight and Marvel brands, which will be manufactured either at its Ashford site or at Knighton by the joint venture under a co-packing arrangement.

The proposed transaction includes the transfer of approximately £16 million of private label and business-to-business sales of powdered beverages and desserts from Premier Foods to the joint venture. In addition, the Brown & Polson brand of home-baking ingredients will be licensed to the joint venture for a period of five years, which also includa call option for the joint venture to purchase Brown & Polson for £2.75 million. Premier Foods will retain all of its other brands currently manufactured at the Knighton site.

The business being contributed to the joint venture by Premier Foods made a trading loss of £0.7 million for the year ended 31 December 2013.