Premier Foods has sold its canned grocery operations to Princes for £182m, including such iconic brands as Crosse & Blackwell, Fray Bentos and Smedley’s.
As revealed by FoodManufacture.co.uk last November, Premier has been locked in talks with Princes with a view to selling the business, which employs around 1,600 people and includes two factories at Long Sutton, Lincolnshire and Wisbech, Cambridgeshire.
The sites manufacture everything from baked beans, pasta and vegetables to soup, meat and fruit. Crosse & Blackwell, Farrows, Fray Bentos and Smedley’s brands are all included in the sale, although Premier is retaining its Ambrosia desserts business in Lifton, Devon.
Branston and Batchelors will remain under Premier Foods’ ownership but will be produced by Princes at Long Sutton and Wisbech.
The sale, which depends on regulatory approval, is expected to be completed by late March, and after transaction costs totalling £8m, Premier said it would use the proceeds to pay down group debt, which stood at £1.37bn net in June 2010.
High price achieved
The £182m sale reflected a figure 5.75 times the EBITDA (earnings before interest, tax, depreciation and amortisation) of the canning business, which Premier predicts will be £32m on full-year sales of £334m, when it publishes its 2010 results next Tuesday.
Investec Securities analyst Martin Deboo told FoodManufacture.co.uk that the price paid by Princes was slightly lower than expected, "given that I predicted a figure upon the basis that it would be around six times EBITA".
Premier Foods' chief executive Robert Schofield said that as a predominately non-branded business, the canned grocery operation had not been a focus area for the group.
But Deboo said: "It's a common misconception that exiting Quorn and canning has changed Premier's focus from branded to own label, given that quorn is 100% branded, it hasn't really affected the balance."
Clive Black, head of research, Shore Capital, agreed, stressing in a note this morning that, despite Schofield's comments, a sizeable 43% of the canning disposals were proprietary in nature, as against 57% private label.
'Reach for the old record'
Nonetheless, Schofield added that selling canning and Quorn/Cauldron Foods, "simplifies our operations and allows us to concentrate our efforts on our current portfolio of great British brands."
“Combined with the proposed disposal of our meat-free business, we will have delivered total gross proceeds of £387m, significantly accelerating the delivery of our financial strategy,” he said.
Black, however, was unimpressed: "We reach for the old record and reiterate our view that the business remains weak and burdened. Debt is falling but so are operating cash flows and earnings. Furthermore, there remains a substantial pension deficit and a business where the operating cash flows have been far from secure."
Reiterating Shore's 'sell' rating on Premier shares, Black added: "We applaud chief financial officer Jim Smart for the transparency and execution of the deleveraging strategy. However, the fact remains that Premier is a stock where we still question whether or not the shares have value."
Princes md Ken Critchley said the acquisition would enable his firm to grow its UK and continental European businesses, by offering clients a wider range of ambient food products and brands.