Premier Foods Regulatory News (PFD)

24 January 2011

Premier Foods plc("Premier Foods" or the "Group")

PROPOSED DISPOSAL OF THE MEAT-FREE BUSINESS TO

EXPONENT PRIVATE EQUITY LLP FOR £205 MILLION

Premier Foods announces that it has reached an agreement with Exponent Private Equity ("Exponent") and Intermediate Capital Group (ICG) to sell its Meat-free business, which manufactures and sells products under the Quorn and Cauldron brands.

Highlights of the transaction

·; Aggregate consideration of £205m, on a debt free and cash free basis representing a multiple of 10.6 times EBITDA;

·; Meat-free business expected to report sales of £128.8m and EBITDA (1) of £19.3m in the year to 31 December 2010;

·; After costs and a pension fund contribution totalling £4.5m, the remaining proceeds will be used to pay down bank facility debt;

·; Will reduce Premier Foods' average debt / EBITDA ratios by around 0.35x, making a significant contribution toward reaching the target leverage ratio;

·; Represents a large step in the Group's financial strategy to reduce debt, which in turn will facilitate the diversification of financing sources; and

·; Conditional on receiving bank and shareholder consent is expected to complete in early March.

(1) EBITDA is profit before interest, tax, depreciation, amortisation and allocated Group and corporate costs.

Background

The Group's business strategy was set out early in 2010 as follows:

·; to grow our branded sales faster than their respective markets by investing in and strengthening our brands and their relevance to today's consumers;

·; to gain competitive advantage by utilising our consumer insight and scale to deliver value to customers and to work more effectively with suppliers; and

·; to deliver efficiency benefits such that supply chain costs and overheads are held flat or decline while volumes grow.

The Group's financial strategy was set out in July 2010 as follows:

·; to focus on cash generation and to reduce average debt to EBITDA to 3.25 or less;

·; to derisk the swap portfolio and pension arrangements; and

·; to diversify our sources of funding.

Following a review, during the second half of 2010, the Group decided to accelerate both the business and the financial strategy. Accordingly, we have now aligned our organisation structure more closely with the strategy by separating out the management of our Drive and Core brands from the Defend brands and non-branded and concluded that we should pursue a number of approaches for parts of our business to determine whether there were disposals which could accelerate leverage reduction.

The sale of the Meat-free business will contribute to both. It will allow us to focus more resources and management time on the Grocery and Hovis businesses and brands and will reduce the Group's debt, facilitate diversification of funding sources and reduce materially the amount of time required to reach our target average debt to EBITDA ratio.

Chief Executive Officer's comments

Commenting on the proposed disposal, Robert Schofield, Chief Executive Officer, Premier Foods, said:

"We are pleased to have concluded this sale agreement. It makes a significant contribution to reducing our debt. Having also recently completed the restructuring of our swaps portfolio, this deal represents another step along the road to achieving a capital structure which we believe will be more attractive to investors. It will also enable the business to focus further on building our current portfolio of great British brands." 

Chris Graham, Founding Partner, Exponent, said:

"We are pleased to be acquiring Quorn and Cauldron which are strong and robust brands with a loyal customer base. With additional investment both in the UK and internationally we believe we can grow the business further. It fits well within Exponent's portfolio which focuses on prominent and distinctive businesses and includes companies such as The Trainline.com, Dreams and The Ambassador Theatre Group."

Use of proceeds and financial effects of the disposal on Premier Foods

The proceeds from the disposal will be used to pay down Premier Foods' debt, and hence the disposal will accelerate the reduction of average debt and leverage levels for the continuing business which is in line with the stated Group strategy and which the Board believes will deliver considerable shareholder value.

The consideration of £205m is payable in cash on completion and is subject to certain post-closing adjustments relating to the amounts of debt, cash, inter-company debt and working capital at Closing. After estimated transaction costs of £3.5m and approximately £1.0m which will be paid to Premier Foods' pension scheme, the remainder of the net cash proceeds of the disposal will be applied to pay down the Group's existing term facility.

The disposal will have a positive impact on Premier Foods' average debt to EBITDA ratio. The Meat-free business is expected to report EBITDA(1) for the year to 31 December 2010 of £19.3m, and, with net proceeds of £200.5m, the average debt to EBITDA ratio is anticipated to be reduced by approximately 0.35x versus what it would otherwise have been. Thus the transaction represents a significant step towards reaching Premier Food's target of 3.25 average debt / EBITDA over the medium term. As at 26 June 2010, net debt was £1,365m and Average debt / EBITDA stood at 4.54x. The Board expects the disposal to have only a slightly negative impact on earnings per share. This statement does not constitute a profit forecast and should not be interpreted to mean that the Continuing Group's earnings per share for 2010 will necessarily match, or be greater or less than, historical published earnings per share.

Background to and reasons for the disposal

Premier Foods acquired its Meat-free business in 2005 through the acquisitions of Marlow Foods (including Quorn) and Cauldron Foods. During Premier Foods' 5 year tenure, sales of the business have increased through innovation and new product and channel development by 29%(2). To date, the business has predominantly focused on the UK market but due to the unique properties of mycoprotein, the Board believes that the Meat-free business continues to have high growth potential particularly internationally where meat alternative markets are less developed than in the UK. The Group's strategy, however, is to focus its resources on the UK market and, therefore, the Group will not prioritise the development of the commercial infrastructure and distribution channels required to penetrate and expand in these international markets.

Premier Foods' Board has continued to be open minded about disposals, provided they deliver shareholder value and accelerate the reduction of average debt and leverage levels. Both of these metrics will improve as a result of the disposal, in line with Premier Food's stated financial strategy. The reduction of debt levels will also facilitate the diversification of Premier Foods' funding sources, another priority of the Group's stated financial strategy. The Board also believes that the consideration for the disposal fairly reflects the prospects for the Meat-free business.

(1) EBITDA is profit before interest, tax, depreciation, amortisation and allocated Group and corporate costs.

(2) Premier Foods profit & loss accounts from 2005 to 2010.

The Meat-free business is operated on a substantially stand-alone basis from the rest of Premier Foods. Therefore, the Board anticipates minimal risk to and impact on the continuing Group through the sale of the Meat-free business or associated with its separation. Premier Foods is expected to record a loss on disposal of the business of approximately £25m.

Information on the Meat-free business

The Meat-free business forms part of the Group's Chilled division and is the UK market leader in the meat alternative segment selling chilled and frozen products under the Quorn and Cauldron brands. Quornoffers a wide range of meat alternative products made from mycoprotein, including mince, burgers, sausages, escalopes, cottage pies, lasagne and snacking products such as picnic eggs. Cauldron is the UK's No.1 brand in tofu and also produces a range of non-tofu products including falafels, vegetarian sausages and ready meals. Together, Quorn and Cauldron are in a complementary position to address the full spectrum of protein demand among vegetarians and non-vegetarian healthy eaters and meat reducers.

The Meat-free business has three manufacturing sites in the United Kingdom and employs approximately 595 people. 

For the year ended 31 December 2009, the Meat-free business had revenues of £131.3 million, EBITDA of £12.2m and a trading profit of £8.1m. At 31 December 2009, the Meat-free business had net assets of £224.2m and gross assets of £280.6m. For the year ended 31 December 2010, the Meat-free business is expected to have revenues of £128.8m, EBITDA of £19.3m and a trading profit of £16.2m.

Under Exponent's ownership the management team will continue to be led by Kevin Brennan, who will be CEO of the new business. He will be supported by Clive Sharpe as Chairman. Clive has considerable experience in running food businesses with private equity.

Shareholder approval procedure

The disposal is conditional upon the giving of all consents required from lenders under the finance facilities of the Group and the approval of Premier Foods' shareholders.

A circular giving details of the disposal and containing a notice of a general meeting at which a resolution to approve the disposal will be proposed and sent to shareholders shortly.

Subject to receiving all necessary consents required from lenders under the finance facilities of the Group and the passing of the resolution at the general meeting, the disposal is expected to complete in early March.

Enquiries

For further information, please contact:

Premier Foods plc

01727 815 850

Jim Smart (Chief Financial Officer)

Gwyn Tyley (Director of Investor Relations and M&A)

Maitland

020 7379 5151

Neil Bennett

Brian Hudspith

Rothschild

020 7280 5000Akeel SachakRobert Plowman

Notes to editors

1. This document contains forward-looking statements which are based on the Premier Foods' Board's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements.

It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a number of variables which could cause actual results or trends to differ materially, including, but not limited to, factors that are beyond the Company's ability to control or estimate precisely, such as delays in obtaining, or adverse conditions contained in, regulatory approvals, competition and industry restructuring, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in historical weather patterns, changes in competitive circumstances, changes in customer or supplier behaviour, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the failure to retain key management, the availability of new acquisition opportunities or the key timing and success of future acquisition opportunities. Each forward-looking statement speaks only as of the date of the particular statement. Except to the extent required by applicable law, the Listing Rules and the Disclosure Rules, the Company will not necessarily update any forward-looking statement in the light of new information or future events and undertakes no duty to do so.

2. Rothschild, which is authorised and regulated in the UK by the FSA, is acting as sole financial adviser and sole sponsor to Premier Foods in connection with the Disposal of the Meat-free business and no one else and will not be responsible to anyone other than Premier Foods for providing the protections afforded to clients of Rothschild nor for providing advice in relation to the Disposal of the Meat-free business or any other matter referred to in this announcement