Premier Foods has agreed to buy the UK and Irish businesses of Campbell Soup for 460 million pounds ($846 million), adding Oxo stock cubes, Batchelor soups and Homepride flour to its stable of brands.
Premier Foods, which already owns household names such as Angel Delight desserts and Smash instant mashed potato, said on Wednesday it would finance the deal mainly from a fully underwritten rights issue to raise 450 million pounds.
It said the deal, which would not include debt, would bring cost savings of 28 million pounds within three years and would boost profit margins in the first full year of ownership.
The brands are a good fit with its existing UK branded portfolio. We see the deal consistent in profile with previous successful acquisitions, UBS analysts said in a research note.
At 1130 GMT, Premier Foods shares were up 2.9 percent at 318-1/2 pence, valuing the firm at about 788 million pounds.
Our strategy has been acquiring iconic British brands, and in the last three years we made big acquisitions and funded each one of those with debt. As a consequence, we are taking this opportunity to raise additional equity to allow more flexibility in the balance sheet, Finance Director Paul Thomas told Reuters.
Thomas also expected the group's EBITDA (earnings before interest, tax, depreciation and amortization) margin to improve by 2 to 3 percentage points to around 17 to 18 percent after the deal.
The rights issue, which will be offered at a minimum subscription price of 160 pence per new share, has been fully underwritten by Merrill Lynch and Hoare Govett. The issue price and the number of new ordinary shares will be determined in late July, the company said.
The Campbell's UK business fits Premier like a glove. The acquisition will bring an excellent portfolio of powerful and iconic brands which we intend to drive forward with increased resource and innovation, Robert Schofield, Premier chief executive, said in a statement.
The Campbell UK business had 26 million pounds in operating profit before exceptional items in the year to end-July 2005 on sales of 263 million pounds. Goldman Sachs is the sole adviser to Campbell for the sale of the business.
This is a big step for Premier, which seems logical, but the company has yet to demonstrate fully that it's bedded down existing deals, Oriel Securities said in a note.
The new acquisition will present significant further challenges, and there's a big funding to do, it said, adding it was maintaining its 'hold' recommendation on the company's shares.
Premier Foods said last week its vegetarian Quorn range of products, which it acquired last year, had seen double-digit percentage growth in first-half sales.