Premier Foods PLC (LON:PFD) is expected to try and sell off its minority 49% stake in Hovis as part of a sales process spearheaded by the bread brand’s majority shareholder, private equity firm The Gores Group.
According to a Sky News report, The Gores Group, headed by US billionaire Alex Gores, has hired bankers to sell its 51% stake in Hovis, with the entire business expected to command a price of between £100-150mln.
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Gores acquired its stake in Hovis for around £30mln six years ago, meaning it could more than double its money if the top end of the estimated value is achieved in the auction process.
Hovis, alongside other staple food brands, has seen a surge in demand during the coronavirus lockdown as consumers have been forced to fill their cupboards more than usual as restaurants and other eateries closed their doors.
However, the sector is also facing difficulties as customers switch away from bread and other carb-heavy products.
Premier, which also owns the Mr Kipling and Sharwoods brands, may also welcome cash from the sale as part of an effort to relieve pressure on its balance sheet.
While Hovis is unlikely to combine with other bread producers due to competition concerns, it may attract attention from other consumer brand groups.
In a note on Wednesday, analysts at Premier’s house broker Peel Hunt retained their ‘buy’ rating and 80p price target on the firm, saying the cash proceeds of the sale would be “welcome”, adding that it was “not a surprise that a sale is being considered” by The Gores Group.
“The pandemic and lockdown have increased demand for bread and so this is probably a sensible time for Gores to be looking at an exit. As mentioned above, this is not a process driven by Premier, but clearly any cash proceeds would be very welcome and accelerate the process of paying down expensive debt”, the broker said.
Shares in Premier Foods jumped 9.5% to 52.1p in early deals.