Premier starts diet by selling veggie firms

The group, which first received interest in the businesses last October, is selling them to Exponent Private Equity and Intermediate Capital Group.

The two have pledged to invest in the businesses and there will be no impact on factory jobs. Quorn employs 320 staff in Stokesley, North Yorkshire, plus another 60 at Billingham in Stockton-on-Tees.

Chris Graham, founding partner at 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."

Premier is considering other disposals to reduce its 1.37bn debts.

Chief financial officer Jim Smart said: "There's nothing in my portfolio that I'm saying is non-core, for sale, but I am open-minded to disposals.

"If there are other people interested in other bits of the business we're open-minded, but it would have to be full compensation for our shareholders."

Shore Capital analyst Darren Shirley said: "It (the sale) is positive in that it reduces the debt, the leverage in the business, but you could argue that Quorn and meat-free was one of the growth areas of the business and that they're having to sell the family silver."

Quorn was bought by Premier in 2005 when it acquired Marlow Foods for 172m.

The first Quorn product was launched in 1985 using a specially developed protein-based ingredient called mycoprotein and it has since become a popular meat substitute for vegetarians.

In recent years, Premier has expanded the market for Quorn beyond vegetarians to people who want to eat more healthily.

Cauldron produces a range of tofu products and vegetarian sausages.

Premier said in the year ending December 31, the meat-free division made revenues of 128.8m and a trading profit of 16.2m.

Analysts at JP Morgan Cazenove said Premier's ability to cut its debt remains a key concern for the market.

"Our view remains that if it were to convince the market it can reduce its debt, there could be considerable upside to the shares given the leverage to the equity valuation," the broker said in a note.

Shares in Premier have risen 24 per cent since December 3 when it confirmed it was in advanced talks with two parties regarding the sale of Quorn, with one of the suitors believed to be the world's biggest food group Nestl.

Last night they closed down 0.8p at 21.55p.

At 205m, the value of the disposal was lower than the 230m reported in December, but Mr Smart said the 10.6 times EBITDA multiple achieved was "pretty good" for the food industry at the current time and at the upper end of analyst estimates.

Hovis-to-Mr Kipling firm Premier needs to cut its debts following a series of acquisitions, including the Hovis bakery company RHM in 2007 for 1.2bn and the UK arm of Campbell's Soup in 2006 for about 450m.

The deal improves Premier's earnings to debt ratio and means it is now likely to hit its target leverage ratio two years ahead of schedule.

Commenting on the disposal, Robert Schofield, chief executive at Premier, said: "We are pleased to have concluded this sale agreement. It makes a significant contribution to reducing our debt."

He said the deal was a "step along the road to achieving a capital structure which we believe will be more attractive to investors".

Premier said the structure of the business, including staff, will remain the same following the sale.

Exponent is a private equity firm which focuses on companies with an enterprise value of between 75m and 350m. ICG provides mezzanine finance, leveraged credit and minority equity to companies worldwide.

Discovery in an English garden

The Quorn story started in 1967 with the discovery of a fungus in a garden in Buckinghamshire by researchers looking for a way of converting starch into protein to alleviate global food shortages.

During Premier's five-year tenure, sales of the Quorn and Cauldron businesses have increased by 29 per cent.

The businesses have predominantly focused on the UK market, but Premier believes they have high growth potential internationally where meat alternative markets are less developed.

Quorn has a wide range of meat alternative products made from mycoprotein, including mince, burgers and sausages. Cauldron is the UK's top brand in tofu.