The sale – first announced last June – includes Branston sweet pickle, ketchup, relish, salad cream and mayonnaise, together with the firm’s Bury St Edmunds factory in Suffolk. The deal is expected to be completed early next year. All employees at the site are expected to transfer to Mizkan after consultation.
£40M ahead of the £330M target
The deal means Premier has delivered about £370M in disposal proceeds since March 2012, which is £40M ahead of the £330M target it committed to deliver by June 2014 as part of its financing arrangements.
After the disposal, the branded sales mix of Premier’s grocery business will increase to about 90%.
Graham Jones, executive director of city analyst Panmure Gordon, said:“Even after these recent disposals, Premier will remain highly geared and it still has a very large pension deficit which has to be serviced from a smaller cash generative base.”
This sale price equates to 1.4x sales and 7.9x earnings before interest, tax, depreciation and amortisation (EBITDA) for 2011, said Jones. “As such, it represents a better multiple than previous disposals.”
Jones added that further disposals − such as sweet dehydrated powders – could not be ruled out. All options could be considered − including exiting milling.
Panmure Gordon retained its ‘hold’ recommendation on Premier’s stock.
Exceeded our disposal target
Michael Clarke, Premier’s ceo, said: “I’m delighted to have exceeded our disposal target 20 months early while at the same time delivering three successive quarters of sales growth and taking £40M of overhead costs out of the business this year.
“We can now focus our attention on driving further momentum in our Grocery business and unlocking value in bread.”
Clarke added that the disposals since March had achieved a healthy average earnings value/EBITDA multiple of 8.9x based on current year trading and expected overhead cost reductions. “This is a good result in the current market,” he said.
Kazuhide Matazaemon Nakano, ceo Mizkan, said: “Branston Sweet Pickle is an iconic brand that has established a market-leading position. The Branston brand is also an excellent strategic fit with our global portfolio and adds to our solid foundation for growth in the UK.”
The deal is dependent on approval by Premier Foods’ shareholders and consent from its banking syndicate.
This latest disposal represented a fall of about 30% in the firm’s net debt since the position reported in its half year results.
Both firms have entered a co-packing agreement, whereby Mizkan will continue to manufacture certain cooking sauces and other products at the Bury St Edmunds site for the next 15 years.
