UK-based Premier Foods has struck a deal with private equity firm Gores Group to sell a controlling stake in its struggling bread making division, a move which allows it to focus on its grocery business.
As per the agreed terms, Gores will pay £30m for 51% stake in the business and the unit will now be operated as a joint venture (JV) under the Hovis Limited name.
The proposed deal includes transfer of Hovis, Mothers Pride, Ormo, Granary and Nimble brands, private label business, business-to-business sales and the flour milling business.
Premier Foods CEO Gavin Darby said, "We can now focus our attention and resources on developing our category leading Grocery brands."
Gores Group managing director Fernando Goni said, "We are excited to partner with Premier Foods to revive the Hovis brand and spearhead re-investment across the Bread business."
The parties are also set to invest £45m in the business, of which £32m will be provided on completion of the transaction.
Along with external financing and cash flows, the funding will support JV's plan to invest approximately £200m in the business over the next five years to enhance efficiency and reinvigorate the Hovis brand.
In addition, the companies will support the JV with a stand-alone credit facility.
The transaction, which is subject to competition approval from the European Commission, is expected to close in the second quarter of 2014.
Premier Foods stated that it will retain the McDougall's brand and will use the Hovis brand for retail and business-to-business sales of flour and bread mixes, as part of a separate licensing arrangement with the JV.
The company expects the short-term cash benefits of about £28m, which will be used to support its core Grocery business.
