The company said the joint venture (JV), to be named Knighton Foods, would combine dry powders manufacturing capabilities and assets from both parties at Knighton, increasing efficiencies and cutting costs.
The agreement would also enable the transfer of two production lines from Knighton to Premier Foods’s manufacturing plant in Ashford, Kent, further boosting manufacturing efficiency, it claimed.
All 200 employees at the Knighton site are expected to transfer to the joint venture following an appropriate consultation process.
Under the terms of the agreement, which is expected to be completed at the end of this month, Specialty Powders will contribute its wholly-owned businesses, Phoenix Foods and Agglomeration Technology, to the JV. In return, it gets a 51% controlling stake in the JV, plus a loan to repay existing debts of £3M.
Premier Foods will contribute its Knighton site and assets, other than the two production lines that will be transferred to its site in Ashford, to the JV. The company has committed to the JV for an initial period of four and a half years.
Powdered beverages and desserts
The proposed transaction includes the transfer of approximately £16M of own-label and business-to-business sales of powdered beverages and desserts from Premier Foods to the JV. In addition, its Brown & Polson brand of home-baking ingredients will be licensed to the JV for five years, with the option for the JV to buy Brown & Polson for £2.75M.
In return, it will secure a 49% stake in the JV and a promissory note of a principal amount equal to the loan, plus interest, to Specialty Powders.
Premier Foods would retain the substantial majority of its branded sales currently made at Knighton, which would be made either at Ashford or at Knighton by the JV under a co-packing arrangement.
The JV will be led by Mike Kirby, current majority shareholder and group md of Specialty Powders, who will become chairman of the JV on completion of the deal. Premier Foods and Specialty Powders will each nominate three directors to the JV board.
The JV is expected to benefit from a credit line of up to £10M, details of which will be finalised prior to completion.
The deal will result in cash restructuring costs for Premier Foods of approximately £4M in 2014. A further £1M of capital expenditure will also be required, although this will be accommodated within current capital plans.
“This innovative agreement will help to improve the efficiency of Premier’s grocery infrastructure and, at the same time, allows us to benefit from a dedicated team with expertise that can support our powdered beverages and desserts business,” said Premier ceo Gavin Darby. “This is a very positive development both for Premier Foods and for our employees at Knighton.”
Kirby added: “Knighton Foods will have a strong focus on dry powder products with the ability to invest in new processes, products and packaging formats.
“Our combined technical expertise and manufacturing capabilities will ensure that we continue to deliver high quality products for our customers and consumers, and enable us to develop a successful, broad-based powder processing and packing business for the future.”
Consolidation of logistics
Premier also announced that it had completed the previously announced consolidation of its third-party operated grocery logistics sites.
The change takes it from three national distribution centres to two regional distribution centres (RDCs) based in Skelmersdale, Lancashire and Corby, Northamptonshire.
Both RDCs now stocked the full range of ambient grocery products (excluding cake), helping to reduce the number of customer order points, leading to faster order fulfilment and improved customer service, it said.
The simplified network, plus improved logistics management, would cut the number of road journeys needed, removing about 750,000 road miles by the end of 2014, and slash costs, said Premier.