From Yorkshire to California ? Premier Foods has jumped more than 4% following reports a US private equity group was in talks to take control of its Hovis bread business. Premier is struggling with a debt mountain and pension deficit of £1.3bn, and is considering a number of restructuring options, including a rights issue. One plan suggested towards the end of last year was that an outside investor could take a stake in Hovis, the subject of the famous boy on a bike television advert which was shot in Dorset but meant to be set in Yorkshire. Now Alec Gores , who heads up a US turnaround vehicle, is said to be interested in such a deal. Other names mentioned previously include PAI Partners and Sun European Partners . Premier's shares have climbed 5.5p to 135p following the Sunday Times report about Gores, and Clive Black at Shore Capital said: We continue to see merit in Premier Foods reducing its exposure to low margin and at times struggling Hovis, whilst with new partners potentially re-energising the bread operation. In due course we do not rule out the possibility of Premier de-merging, spinning off or selling Hovis to shareholder benefit, although over-coming the substantial pension responsibilities should not be under-estimated and needs to be understood on our behalf. More broadly we continue to await the re-financing of Premier Foods through the probable combination of a rights issue and corporate bond, although this remains our long-standing view rather than anything that has been confirmed with such clarity by the company. We believe that a refinanced Premier Foods , with lower and less costly ongoing debt, embracing a more manageable banking structure, to be highly desirable for its share price. Additionally, with balance sheet engineering out of the way, management can firmly concentrate on 'the day job'. Making progress with Hovis' ownership structure and resourcing would be very helpful to the development of the Premier Foods equity appreciation story in our view. So, we continue to wait for news flow to emerge; the next update from Premier Foods is set to confirm its 2013 trading performance if there is no announcement on Hovis in the interim. Shore Capital is encouraged by The Sunday Times story and we would expect Premier Foods' shares to respond in a positive manner, albeit the story needs to become reality for shareholder benefits to be realised.
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