Since coming to the stock market in 2004 Premier Foods has built a solid reputation for revitalising underperforming brands. If its track record with Bird’s, Branston and Quorn is anything to go by, Premier’s purchase of Campbell’s UK and Irish units could be money well spent. Joe Ayling and Katy Humphries report.

At almost three-times the price of any of its previous acquisitions, Premier Foods’ GBP460m (US$840m) debt-free cash purchase of the Campbell Soup Company’s UK and Irish units is by far the company’s biggest purchase to date. It brings a number of iconic British brands, such as Oxo stock cubes, Batchelors dry soups, Fray Bentos meat products and Homepride sauces, into the Premier portfolio. This increases the value of the company’s branded business by 8%, a spokesperson for Premier told just-food, adding that the company aims to continue growing its branded business.

Despite the high level of recognition these brands enjoy in the UK, their recent performance has been lacklustre. Sales have generally slipped or stagnated and Campbell reined in advertising spend in the last few months before the sale in order to generate a quick financial boost.

Nevertheless, most analysts are of the opinion that Premier got the brands at a reasonable price. One market analyst told just-food that at 8.5 times earnings before interest, tax, depreciation and amortisation the agreed price was absolutely fair for both Premier and Campbell. He said Premier now has a unique position and can realise synergies through both existing businesses and the acquired Campbell facilities.

Premier anticipates that the deal will generate cost savings of GBP28m within three years. It intends to axe head-office functions and rationalise Campbell’s production, for which there is certainly scope as Campbell’s factories currently operate at less than 50% capacity. Premier indicated that it expects the acquisition will boost profit margins in the first full year of ownership.

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Premier CEO Robert Schofield commented: “Campbell’s UK business fits Premier like a glove. This acquisition will bring an excellent portfolio of powerful and iconic brands which we intend to drive forward with increased resource and innovation.”

Rothschild analyst Akeel Sachak commented that the price represents good value for both parties: “The acquisition covers the cost of its capital in the first year, and it is a deal which plays to all the core skills that Premier has made successful.”

Rationalising the sale to Premier, Campbell said the businesses lacked sufficient growth potential. Douglas R. Conant, Campbell’s president and CEO, said: “Our portfolio in the UK and Ireland includes some strong brands, but it is highly fragmented and has not met our company’s growth expectations.”

However, sales are widely expected to pick up under Premier’s ownership. “These brands, particularly Batchelors and Oxo, are iconic British brands with great potential. Premier intends to make the most of these household names,” Premier told-just food. Batchelors is now Premier’s biggest brand by sales value.

Rothschild’s Sachak corroborates Premier’s belief that it has what it takes to capitalise on the big brand names. He suggested that the acquired brands have potential given the correct direction by Premier, and that Bachelors in particular could be a “sleeping giant” ready to be shaken into action.

Another attraction of Campbell’s UK units would, Sachak said, be that it is a light business with high margins. “Premier doesn’t want to acquire businesses with large tails of smaller brands,” he observed.

Premier’s strategy to increase brand revenues will likely focus on repositioning the brands in the market and drawing them into new sectors, a spokesperson for Premier indicated. “Premier definitely plans to grow the businesses. If you look at Premier’s track record, Branston for instance, they have a history of taking underutilised brands and fostering growth by moving them into new segments.”

This process focuses on product innovation and can be as simple as repackaging the product, as was achieved with Ambrosia rice pudding when it was packaged in more user-friendly plastic pots. Premier also undertook a more ambitious brand rejuvenation project when it put the Branston name on baked beans and captured an 11% market share.

Premier is already considering various options to expand the Campbell’s brands. It is looking at moving Oxo into the wet gravy stock sector and expanding Batchelors, which is currently only available as a dry soup, into the wet soup category, the company told just-food.

This latest and largest purchase is part of an ongoing expansion strategy and has not satisfied the company’s hunger for further acquisitions, Premier indicated. “Premier is still on the lookout for acquisitions that would sit well with its core product mix,” a spokesperson told just-food.

Although the company declined to identify any particular targets, the slated sale of further units of rival British food group United Biscuits could well provide opportunities.