Premier Foods considers strategic alternatives for bread unit

UK-based Premier Foods is reportedly considering strategic alternatives for its struggling bread business, and has approached several private equity groups over a possible sale of a stake in the business.

The company is seeking an investor for its bread business, which manufactures Hovis, Mother’s Pride and other bread brands.

As part of the process, Premier has hired financial advisory firm Ondra Partners to assist in developing investment options for the bread business, including co-investment by a partner.

Premier Foods stated that there is no guarantee that the process will lead to any transaction in the future, adding that it will provide updates as appropriate.

There are speculations that the company could spin off the bread unit as a separate entity and operate it in partnership with a new investor.

The debt-laden UK firm has already restructured the division to shrink its capacity, while eliminating about 1,000 jobs.

Earlier this year, Premier shut three bakeries and two mills after losing a number of own-label contracts.

Last month Premier CEO Gavin Darby indicated that the company intended to expand the bread business and had no plans to divest the business.

"I tend to come from a background of trying to grow things, so we are working hard on a growth strategy for Hovis," he added.

The Financial Times noted that Mexican bakery firm Grupo Bimbo could be a possible investor, as analysts believe it has previously expressed an interest in the company.

For the third quarter ending 30 September, Premier Foods’ bread business reported a 1.5% drop in year-over-year sales, affected by unfavourable weather conditions.

The company then said that its financial position and net debt expectations for 2013 remain unchanged, with recurring free cash flow generation in the year expected to be in the range of £50m – £70m.

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Image: Premier Foods’ bread business manufactures Hovis, Mother’s Pride and other bread brands. Photo courtesy of Premier Foods.