Premier Foods, the acquisitive UK food group behind some of the country's best selling food brands, has made a recommended offer to acquire 100% of rival food company RHM in a deal that would create the UK's largest food company with pro forma sales of GBP2.6bn (US$5.14bn).

Under the terms of the offer, RHM shareholders will receive one new share in Premier and 83.2 pence in cash for each outstanding share in RHM. This gives each RHM shares a value of 352.45 pence, 29.7% above Friday's (1 December) closing price of 271.75 pence per RHM share, and values RHM's ordinary share capital at GBP1,227m, representing an enterprise value of approximately GBP2bn.

Existing RHM shareholders will hold approximately 41% of the enlarged Premier, the companies said.

In a joint statement issued by both companies, RHM's directors unanimously recommended that RHM shareholders vote in favour of the proposed merger.
 
"The board of RHM has long appreciated the commercial and financial logic of a combination with Premier to create the leading UK-focused food manufacturer. This transaction achieves that objective and delivers substantial value to our shareholders through both the immediate offer premium and participation in the enhanced growth prospects of the enlarged Premier under its proven management team," RHM chairman Jan du Plessis said.

Premier said that the acquisition is an ideal fit in terms of its aggressive growth strategy, as it brings a portfolio of British brands under the Premier umbrella and offers a number of cost saving opportunities. The company has already identified GBP85m of annual synergies that can be achieved through the integration of the two businesses. Premier also emphasised that, as the UK's number one food manufacturer, it will be better placed to develop strategic partnerships with food retailers.

Commenting on today's announcement, Robert Schofield, chief executive of Premier, said: "RHM is a business with strong brands and talented people. This acquisition brings Premier more great British brands with leading category positions which fit naturally in our portfolio. As we've done before, we intend to drive growth through innovation and investment whilst maintaining a tight control on costs. This acquisition transforms our scale and we believe it will enable us to be a better partner with our retail customers."

Aided by the acquisition of Campbell's UK and Irish business earlier in the year and a particularly strong performance from its convenience foods unit, Premier saw first half profits boosted by 13% to GBP41.7m in August.

On the other hand, RHM has faced a number of problems since its floatation last year, notably in its cake division, including the Mr Kipling brand, which has witnessed flagging sales. However, new product launches of healthier breads and cakes have bolstered the company's recent performance.

A circular informing RHM and Premier shareholders of Extraordinary General Meetings will be sent out in due course, the companies said. These meetings are expected to take place in February and, if shareholder approval is given, the acquisition is expected to be completed in March.