LONDON Britain's Premier Foods Plc (PFD.L) is looking to sell its Hartley's jams and Haywards pickles businesses for more than 200 million pounds ($308 million) to help meet its borrowing rules and secure its survival, sources with knowledge of the situation said on Monday.
The UK's biggest foods group, whose top brands also include Batchelor's, Hovis and Mr. Kipling, is struggling with hefty debts after an acquisition spree and is looking to offload non-core businesses as it battles with weak consumer demand.
New Chief Executive Michael Clarke is focusing the group on eight of its biggest brands while selling off other businesses as it aims to meet an already deferred covenant test from its banks by end-March 2012.
"Hartley's and Haywards are up for sale and should be sold before the covenant test comes up, but Premier seems reluctant to sell a brand like Branston because of its high profitability," said one source close to the situation.
Premier has hired two boutique investment banks to sell the two units as distinct businesses each with a dedicated production plant, and are contacting buyers, likely to be private food companies or private equity groups, the sources said.
"We believe if Premier can sell Hartley's and Haywards at reasonable prices then it can survive as it appears to have the support of its banks," said one banking industry source.
Premier declined to comment.
Premier's debt fell to 972 million pounds at its half-year ended June 2011 and after taking into account proceeds from the disposal of its canning operations concluded in July 2011, while its pension deficit stands at 535 million pounds.
Analysts say Christmas trading will be vital with around 40 percent of profit made in the fourth quarter, and will be looking for signs of stabilization in trading after the group suffered from commodity cost rises and tough bargaining on pricing from big food retailing chains.
Despite the group's parlous state, with its latest profits warning coming only in October, sources say its banks led by 83-percent government-owned Royal Bank of Scotland (RBS.L) are supportive of a business which operates from more than 50 sites, has over 14,000 employees and generates over 2 billion pounds of annual sales.
The group's shares were up 6.1 percent at 5.69 pence by 1600 GMT, making the group worth around 135 million pounds. The stock was worth as much as 288p some five years ago
Chief Executive Clarke joined from U.S. group Kraft Foods Inc KFT.N in September and decided to focus on the group's Ambrosia, Batchelor's, Bisto, Hovis, Loyd Grossman, Mr.Kipling, Oxo and Sharwood's brands.
Clarke won an extra three-month grace period from its lenders in November as its banks agreed to defer a key covenant test to end-March, and then started his own disposal program to cut the group's hefty debt.
He sold the group's loss-making private label Mark & Spencer supplier Brookes Avana for 30 million pounds and four Irish food brands for 41.4 million euros, both in December and both to private buyers, bring in around 65 million pounds.
Analysts say if all the planned disposals are made then debt should fall to around 700 million pounds and its critical debt to earnings before interest, tax, depreciation and amortization (EBITDA) ratio should decline to around 3.3 times.
The group reported average debt to EBITDA of 4.45 times at June 2011, but after the July 2010 canning disposal this fell to
4.0. The maximum leverage ratio from its original covenant up to end-2011 was 3.9 times.
Good early progress is being made in the sale process for both the jams and pickles business with a conclusion expected to be seen before the end of March, the sources said.
Hartley's, founded in 1871 as a jam maker, has estimated annual sales of 200 million pounds and is valued at just above one times sales or around 200-250 million pounds.
The business has expanded into jellies and desserts as the Hartley's brand replaced historic brands such as Rowntrees jelly and Chivers, and is based at a plant at Histon, just north of Cambridge, with a workforce of around 450.
The Haywards pickles business is being sold along with its Sarson's vinegar brand which was created in 1794 by Thomas Sarson, with combined annual sales of around 30 million pounds.
The business is based at Middleton, north of Manchester, with a workforce of just under 100, and is expected to fetch around 30-40 million pounds
Premier is reluctant to sell its Branston business of sweet pickles, baked beans and ketchup with annual sales of around 150 million pounds. Although not one of the group's key eight brands it is highly profitable and also may be difficult to sell as some of its products like baked beans are made under license.
Premier's disposal process had started before the new chief executive was appointed as it sold its meat-free Quorn unit for 205 million pounds in March 2011 and its Crosse & Blackwell canned foods business for 182 million pounds in July 2011.
($1 = 0.6490 British pounds)
(Editing by Mark Potter and David Holmes)