Premier Foods Plc (PFD), owner of the Hovis bread and Bisto gravy brands, rose to the highest in four months in London trading after a report it may invite offers.
The shares rose 11 percent, the second-biggest advance on the FTSE All-Share Index today. Private-equity firms have been approached about a possible 1.2 billion-pound ($1.92 billion) takeover of Premier Foods, the Sunday Telegraph reported yesterday. The idea was floated as a “fallback position” to Premier Foods’s restructuring strategy, the newspaper reported. The Sunday Telegraph cited a source it didn’t identify.
“If anyone was willing to offer eight or nine times earnings before interest, taxes, depreciation and amortization for a part of the business, I think that would weigh heavily against any strategic consideration,” Martin Deboo, an analyst at Investec Plc (INVP), said in telephone interview. “Despite 275 million pounds of disposals in the last six months, Premier’s leverage ratio hasn’t changed much.”
The disposals have left Premier Foods’ ratio of net debt to Ebitda unchanged at about 5.5 times, said Deboo. Premier Foods is selling assets to cut debt and today said it completed the sale of a spreads and jellies unit including Hartley’s jam and Frank Cooper marmalade for 200 million pounds.
Premier Foods climbed 10 pence to 101.5 pence, the highest closing price since June 1. That extended the advance to 75 percent this year, giving the company a market value of 243 million pounds. The volume of shares traded was about triple the three-month daily average.
The company had net debt of 1.27 billion pounds at June 30, according to data compiled by Bloomberg.
Premier Foods said in August that the disposal of the spreads division would bring the total from divestitures to 275 million pounds from a target of 330 million pounds by June 2014.
Premier Foods, Associated British Foods Plc (ABF) and Warburtons Ltd., a closely held family business, control close to 90 percent of the U.K. bread market, according to Deboo. Warburtons and ABF would face major competition barriers to owning Hovis, he said.
The company might be of interest to private-equity buyers if the strategic bind represented by the bread business can be resolved, Deboo said.
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