Shares in the owner of Hovis bread and Mr Kipling cakes slid yesterday following speculation it will ask shareholders for a £300m New Year boost.
Premier Foods is reportedly considering the fundraising rights issue as part of a revamp that the company hopes will address debts of approaching £1bn and see off the attentions of Wall Street vulture fund Apollo.
The Sunday Times said that chief executive Gavin Darby, who took the helm 10 months ago, is also mulling a further pension payment holiday and substantial bond issue in an effort to “turn Premier into a normal company again in 2014”.
Shares in the company fell by 11 per cent as investors faced having to stump up £300m for a rights issue that will dilute existing holdings.
The company’s market value of £285m is dwarfed by the size of its debt pile.
The newspaper said the plans may be complicated by Apollo, which has scooped up £100m of Premier’s loans.
In 2009, the investor took control of biscuit maker Burton’s after it fell foul of its bank agree- ments.
As well as a rights issue to shrink the debt, Premier is expected to refinance the rest in order to shrink the size of its bank syndicate from 29 to half a dozen.
Mr Darby, who was formerly boss of Cable & Wireless Worldwide, is also expected to open talks with pension trustees about extending a two-year payments holiday due to expire this month. The deficit is currently £395m.
St Albans-based Premier recently confirmed it is in talks to bring in an outside investor to revive its Hovis bread division. It has sold a number of businesses in the last year, including Sarson’s vinegar and Haywards pickles. The company’s other brands include Oxo, Batchelors and Ambrosia.
Premier confirmed that a rights issue was one of the options under consideration. It said: “The group’s bank debt and revolving credit facilities are in place until mid-2016. As previously stated in the group’s half-year results in July, the board continues to review the full range of options available to the group regarding its future capital structure.
“The group confirms that this review is ongoing and, while it includes the possibility of a rights issue, no decisions have been made at this stage.”
This month, Investec said that “until Premier Foods ‘rehabilitates’ fully” it is likely to “retain a high degree of volatility”. It rates the business an Add with a 160p price target. Clive Black at Shore Capital said: “Such a development has been a central expectation of Shore Capital for some time; indeed it was the basis behind our positive investment thesis set out on Premier in mid-summer.
“We encourage management to press on with this as considerable shareholder benefit can still ensure.
“We also look forward to any progress with the review of the Hovis business, where Ondra Partners have been called in to help.”
Analysts at Credit Suisse said investors in the company have had little to cheer since Premier Foods, RHM and the UK business of Campbells were put together in 2006/7.
“There is no point raking over what went wrong but suffice it to say the 90 per cent fall in the share price pretty much summarises it,” the bank said.
But Credit Suisse said that there are now signs the business has stabilised and may even be beginning to show signs of growth.