Pre-Annual General Meeting Information • Oct 1, 2012
Pre-Annual General Meeting Information
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek your own financial advice immediately from your stockbroker, bank manager, fund manager, solicitor, accountant or other appropriate independent financial adviser who is authorised under the Financial Services and Markets Act 2000 if you are resident in the United Kingdom or, if not, from another appropriate authorised independent financial adviser.
If you sell or transfer, or have sold or transferred, all of your Ordinary Shares, please forward this document, with the accompanying Form of Proxy, as soon as possible to the purchaser or transferee or to the bank, stockbroker or other agent through or to whom the sale or transfer was effected for delivery to the purchaser or transferee. If you sell or have sold or otherwise transferred only part of your holding of Ordinary Shares, please consult the bank, stockbroker or other agent through whom the sale or transfer was effected as to the action you should take.
(Incorporated and registered in England and Wales with registered number 05160050)
and Notice of General Meeting
This document should be read as a whole. Your attention is drawn to the letter from the Chairman of Premier Foods plc, which is set out in Part I (Letter from the Chairman of Premier Foods plc) of this document. The letter contains the recommendation of your Board to vote in favour of the Disposal Resolution to be proposed at the General Meeting referred to below.
A Form of Proxy for use at the General Meeting is also enclosed with this document. Whether or not you intend to attend the General Meeting in person, please complete, sign and return the accompanying Form of Proxy in accordance with the instructions printed on it as soon as possible by post or (during normal business hours only) by hand but, in any event, so as to be received by the Registrar no later than 9.00 a.m. on 23 October 2012 being 48 hours before the time appointed for the holding of the General Meeting. Forms of Proxy received after this time will be invalid.
If you hold your Ordinary Shares in uncertificated form (i.e. in CREST), you may appoint a proxy by completing and transmitting a CREST Proxy Instruction, in accordance with the procedures set out in the CREST Manual, so that it is received by the Registrar (under CREST participant RA19) by no later than 9.00 a.m. on 23 October 2012. The time of receipt will be taken to be the time from which the Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST.
Shareholders may also register the appointment of a proxy electronically by logging on to www.sharevote.co.uk, so that the appointment is received by the Registrar by no later than 9.00 a.m. on 23 October 2012.
Completion and posting of the Form of Proxy or completing and transmitting a CREST Proxy Instruction or appointing a proxy electronically will not prevent you from attending and voting in person at the General Meeting, if you wish to do so.
Your attention is drawn to the section headed "Risk Factors" set out in Part II of this document indicating the various factors that should be considered by Shareholders when considering what action to take in connection with the General Meeting.
A summary of the action to be taken by Shareholders is set out on page 13 of this document and in the accompanying Notice of General Meeting.
No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied on as having been so authorised. The delivery of this document shall not, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this document or that the information in it is correct as of any subsequent time.
Credit Suisse, which is authorised and regulated by the Financial Services Authority, is acting as sole sponsor to Premier Foods plc and for no one else in connection with the Disposal and will not regard any other person (whether or not a recipient of this document), as a client in relation to the Disposal and will not be responsible to anyone other than Premier Foods plc for providing the protections afforded to customers of Credit Suisse or for affording advice in relation to the Disposal, the contents of this document or any transaction, arrangement or other matter referred to in this document.
Apart from the responsibilities and liabilities, if any, which may be imposed on Credit Suisse by the Financial Services and Markets Act 2000 or any other laws, Credit Suisse does not accept any responsibility whatsoever for the contents of this document, and no representation or warranty, express or implied, is made by Credit Suisse in relation to the contents of this document, including its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company or the Disposal. To the fullest extent permissible Credit Suisse accordingly disclaims all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this document or any such statement.
Spayne Lindsay, which is authorised and regulated in the UK by the Financial Services Authority, is acting as financial adviser to Premier Foods plc and for no one else in connection with the Disposal and will not be responsible to anyone other than Premier Foods plc for providing the protections afforded to customers of Spayne Lindsay or for affording advice in relation to the Disposal, the contents of this document or any transaction, arrangement or other matter referred to in this document.
Capitalised terms have the meaning ascribed to them in Part VII (Definitions) of this document.
All Shareholders on the register of members of Premier Foods plc at the close of business on 27 September 2012 have been sent this document.
This document contains forward-looking statements which are based on the Board's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements.
It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a number of variables which could cause actual results or trends to differ materially, including, but not limited to, factors that are beyond the Company's ability to control or estimate precisely, such as delays in obtaining, or adverse conditions contained in, regulatory approvals, competition and industry restructuring, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in historical weather patterns, changes in competitive circumstances, changes in customer or supplier behaviour, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the failure to retain key management, the availability of new acquisition opportunities or the key timing and success of future acquisition opportunities. Each forwardlooking statement speaks only as of the date of the particular statement. Except to the extent required by applicable law, the Listing Rules and the Disclosure Rules, the Company will not necessarily update any forward-looking statement in the light of new information or future events and undertakes no duty to do so.
| Registered Office | Premier House Centrium Business Park Griffiths Way St Albans Hertfordshire AL1 2RE |
|---|---|
| Company Secretary | Andrew McDonald |
| Sponsor | Credit Suisse Securities (Europe) Limited One Cabot Square London E14 4QJ |
| Financial Adviser | Spayne Lindsay & Co LLP 15 John Adam Street London WC2N 6LU |
| Legal Adviser to the Company | Slaughter and May One Bunhill Row London EC1Y 8YY |
| Legal Adviser to the Sponsor | Herbert Smith LLP Exchange House Primrose Street London EC2A 2HS |
| Auditor and Reporting Accountants | PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH |
| Communications | The Maitland Consultancy Limited Orion House 5 Upper St. Martin's Lane London WC2H 9EA |
| Registrar | Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA |
| Page No | ||
|---|---|---|
| EXPECTED TIMETABLE OF PRINCIPAL EVENTS | 6 | |
| PART I | LETTER FROM THE CHAIRMAN OF PREMIER FOODS PLC | 7 |
| PART II | RISK FACTORS | 15 |
| PART III | PRINCIPAL TERMS OF THE DISPOSAL | 24 |
| PART IV | FINANCIAL INFORMATION ON THE BUSINESS | 29 |
| PART V | UNAUDITED PRO FORMA STATEMENT OF NET ASSETS | 31 |
| PART VI | ADDITIONAL INFORMATION | 37 |
| PART VII | DEFINITIONS | 49 |
| NOTICE OF GENERAL MEETING | 52 |
| Announcement of the Disposal | 23 August 2012 |
|---|---|
| Expected date of entry into, and completion of, the Hive Down Agreement | 20 October 2012 |
| Latest time and date for receipt of Form of Proxy and receipt of electronic proxy appointments by registered Shareholders for the General Meeting |
23 October 2012 |
| General Meeting | 25 October 2012 |
| Expected date of Closing | 27 October 2012 |
Future dates are indicative only and are subject to change by the Company, in which event details of the new times and dates will be notified to the Financial Services Authority and, where appropriate, Shareholders.
References to times in this document are to London time.
(Incorporated and registered in England and Wales with registered number 05160050)
David Beever (Non-executive Chairman) Premier House Charles Miller Smith (Non-executive Deputy Chairman) Centrium Business Park Michael Clarke (Chief Executive Officer) Griffiths Way Mark Moran (Chief Financial Officer) St Albans Ian McHoul (Senior Independent Non-executive Director) Hertfordshire Louise Makin (Non-executive Director) AL1 2RE David Wild (Non-executive Director)
Directors: Registered Office:
28 September 2012
Dear Shareholder,
On 23 August 2012, the Company announced that it had entered into a conditional agreement with The Hain Celestial Group, Inc. ("Hain") to sell its sweet spreads and jellies business located in Histon, Cambridgeshire (the "Business"), for an aggregate consideration of £200 million, on a cash and debt-free basis. The consideration will be satisfied by a cash payment of £170 million on Closing and the issue of shares in Hain (the "Consideration Shares") worth at least £30 million as at Closing (as more particularly described in Part III (Principal Terms of the Disposal) of this document) on the third Trading Day after Closing. The consideration is subject to a customary adjustment for a normalised level of stock at Closing, and also adjustments in respect of the net profits and tax liability of HSSL, in both cases, for the period between completion of the Hive Down Agreement and Closing. The Disposal Agreement provides that the Seller may, at its discretion, exercise the Cash Alternative Option (please see Section 2 of Part III (Principal Terms of the Disposal) for further information). This would give rise to the payment of £19 million in cash by the Purchaser to the Seller on Closing in lieu of the issue of the Consideration Shares (meaning that the aggregate consideration would then be £189 million rather than £200 million). However, the Directors believe it is very unlikely that the Seller would elect to exercise the Cash Alternative Option. The principal terms of the Disposal Agreement, including details of the adjustments, are set out in Part III (Principal Terms of the Disposal) of this document.
The Disposal is of sufficient size relative to that of the Group to constitute a Class 1 transaction for the purposes of the Listing Rules and is, therefore, conditional upon the approval of Shareholders. All consents required from lenders under the Group's finance facilities to permit aspects of the Disposal which require lender consent were received on 18 September 2012.
The proceeds of the Disposal represent significant progress towards achieving the targeted aggregate proceeds from certain planned disposals of £330 million (the "Aggregate Proceeds") that the Group is required to achieve by 30 June 2014 under the terms of the refinancing arrangements agreed in March 2012 (such planned disposals, being the "Planned Disposals"). The Planned Disposals do not require the consent of the lenders under the terms of the Bank Facilities Agreement (as further described in Section 7.1 of Part VI (Additional Information)). If the Disposal does not proceed, it is expected that the Group will consider disposing of other assets in order to meet this requirement.
Your approval of the Disposal is being sought at a General Meeting of the Company to be held at London Hilton on Park Lane, 22 Park Lane, London W1K 1BE on 25 October 2012 at 9.00 a.m. A notice of the General Meeting and of the Disposal Resolution to be considered at the General Meeting is set out at the end of this document. A summary of the action you should take is set out in Section 10 of this letter and on the Form of Proxy that accompanies this document.
The purpose of this document is: (i) to provide you with information on the Disposal; (ii) to explain the background to and reasons for the Disposal and why the Board believes the Disposal is in the best interests of Premier Foods and its Shareholders as a whole; and (iii) to recommend that you vote in favour of the Disposal Resolution at the General Meeting.
The Business is engaged in the production of a wide range of branded and retailer-branded sweet spreads and jellies. The Business currently forms part of the Group's grocery division. The Business competes in the UK jam, marmalade, honey, peanut butter, chocolate spread and jelly markets, and holds the top or secondplace branded position in each of these categories.
The Business is based at a factory in Histon, Cambridgeshire, which will transfer as part of the Disposal. The majority of the products are manufactured on site. The Business employs approximately 380 staff.
The sweet spreads division of the Business holds the top or second-place branded position in all the key categories of the UK sweet spreads market: jam, marmalade, honey, peanut butter and chocolate spread. The majority of the sweet spreads business is branded. The brands include Hartley's, Robertsons, Frank Cooper, Keiller, Gales and Sun-Pat. Hartley's is Britain's most popular jam with a 27.7 per cent. share of the branded jam sector. The portfolio also includes the licence to produce and distribute Rose's marmalade and significant private label business and business-to-business sales.
In addition to producing and selling products under the above brands, the sweet spreads division is an important retailer-branded supplier to retailers and a significant provider of ingredients to other businesses.
The branded ambient desserts division of the Business consists of the production of "jelly-to-make" and ready-to-eat jelly pots under the Hartley's brand. Hartley's holds the top branded position in the jelly category of Britain's branded ambient desserts market.
The table below summarises the trading results of the Business (on an IFRS basis) for the three years ended 31 December 2011 and the six months ended 30 June 2012:
| Six months | ||||
|---|---|---|---|---|
| Year ended | Year ended | Year ended | ended | |
| 31 December | 31 December | 31 December | 30 June | |
| 2009 | 2010 | 2011 | 2012 | |
| £ million –––––––– |
£ million –––––––– |
£ million –––––––– |
£ million –––––––– |
|
| Turnover | 170.8 | 169.9 | 165.0 | 78.3 |
| Operating profit | 30.2 | 31.6 | 32.3 | 13.3 |
| EBITDA | 35.4 | 37.2 | 38.3 | 16.3 |
| Profit on ordinary activities before taxation | 30.2 | 31.6 | 32.3 | 13.3 |
The income statement information presented above is before the allocation of central Group and Corporate costs, because it is not possible to provide a meaningful allocation of these costs.
EBITDA is profit before interest, tax, depreciation and amortisation.
The income statement information presented above is unaudited.
For the six months ended 30 June 2012, the Business had an operating profit of £13.3 million and gross assets of £75.1 million.
The financial information in this Section 2 has been extracted without material adjustment from the financial information contained in Part IV (Financial Information on the Business) of this document.
Please refer to Part IV (Financial Information on the Business) of this document for further historical information on the Business.
The Disposal represents another significant step in the Group's strategy to prioritise investment in its Power Brands and to divest selected non-core businesses. The proceeds of the Disposal will reduce the net indebtedness of the Group and represent significant progress towards the achievement of the targeted aggregate proceeds from certain planned disposals equal to the Aggregate Proceeds that the Group is required to achieve by 30 June 2014 under the terms of the refinancing arrangements agreed in March 2012. The Bank Facilities Agreement further stipulates that £264 million of the Aggregate Proceeds is required to be realised by 31 December 2013 and that £300 million of the Aggregate Proceeds is required to be realised by 31 March 2014. In July 2012 the Group completed the disposal of its vinegar and sour pickles business and the disposal of its Elephant Atta ethnic flour business. Aggregating the proceeds of these disposals together with the cash proceeds from the Disposal and the value of the Consideration Shares, if realised at their value at Closing, means that the Company would have generated proceeds of at least £275 million, which would fulfil the first disposal threshold of £264 million.
Premier Foods is one of Britain's biggest branded food producers with revenue of £2.0 billion in 2011. The Group manufactures, distributes and sells a wide range of branded and non-branded foods. Premier Foods employs around 10,000 people and operates from over 40 sites across the UK and Ireland. The Group has a wide portfolio of British brands, many of which are market leaders. The Group's business is focused on eight Power Brands: Ambrosia, Batchelors, Bisto, Hovis, Loyd Grossman, Mr. Kipling, OXO and Sharwood's. In addition, the Group has a portfolio of many other British food brands and also an extensive retailer-branded food business which manufactures food in partnership with many of the UK's leading food retailers.
Following the Disposal the Group will comprise the Grocery and Bread divisions.
The Grocery division encompasses a variety of ambient grocery categories including cakes, soups, vegetables, stocks, gravies, home baking, cooking sauces, Asian meal solutions and beverages. Key brands retained in the Grocery division following the Disposal will be Ambrosia desserts, Batchelors instant soups, noodles and pasta dishes, Bisto gravy, Loyd Grossman cooking sauces, Mr Kipling cake, OXO stock and Sharwood's Asian meal solutions. Other well-known brands in the Grocery division include Cadbury cake, Branston pickles and relishes, Paxo stuffing, Saxa salt, McDougalls flour, Atora suet, Lyons cakes, Homepride cooking sauces, Bird's custard, Smash instant mashed potato, Marvel powdered milk creamer and Angel Delight instant desserts.
The Bread division operates principally in the wrapped bread market supplying Hovis, Granary and Mother's Pride, and retailer-branded wrapped bread. In addition, it manufactures branded and retailerbranded morning goods, such as muffins and crumpets. The division is also the largest vertically integrated baker and flour miller in the UK, and produces a wide range of bulk flours and branded and retailer brand bagged flours. Key brands in the Bread division are Hovis, Granary and Mother's Pride. The Bread division also includes Charnwood Foods, a frozen pizza base business. Hovis is the largest brand by value across all of the Group's divisions.
The Group has four stated strategic priorities to help stabilise the business, namely to:
The Group's growth strategy is based on the following four pillars:
The Hain Celestial Group, headquartered in Melville, NY, is a leading manufacturer of natural and organic foods and personal care products in North America and Europe. Hain Daniels Group, a company wholly owned by Hain Celestial, was established in October 2011 following the acquisition of The Daniels Group. Hain Daniels makes and sells fresh food and drinks in eight chilled and frozen categories under the New Covent Garden Soup Co. ®, Johnson's Juice Co. ®, Linda McCartney®, Farmhouse Fare® and Lovetub® brands.
The Disposal will be effected by way of: (a) the transfer of the assets comprising the Business by the Seller to Histon Sweet Spreads Limited ("HSSL"), a wholly-owned subsidiary of the Seller, under the Hive Down Agreement; and (b) the sale of the entire issued share capital of HSSL and the right to repayment of the Business Consideration Debt to the Purchaser pursuant to the terms of the Disposal Agreement.
The shares of HSSL and the right to repayment of the Business Consideration Debt will be sold by the Seller to the Purchaser for a total consideration of £200 million, subject to a post-Closing adjustment relating to the amounts of stock in HSSL at Closing and adjustments in respect of the net profits and tax liability of HSSL, in each case, for the period between completion of the Hive Down Agreement and Closing. The Consideration will be satisfied by a cash payment of £170 million on Closing and the issue of Consideration Shares worth at least £30 million as at Closing (as more particularly described in Section 2 of Part III (Principal Terms of the Disposal) of this document) to the Seller on the third Trading Day after Closing. Assuming that 836,426 Consideration Shares are issued to the Seller (being the minimum number of Consideration Shares which will be issued to the Seller under the terms of the Disposal Agreement), based on the total number of Hain shares in issue as at 20 September 2012 (being the last practicable date before the issue of this document), the Seller would hold a 1.85 per cent. interest in the issued share capital of Hain.
If the Directors believe that the Seller would be unable to monetise the Consideration Shares within a reasonable timeframe after the issue of the Consideration Shares, the Disposal Agreement provides that the Seller may exercise the Cash Alternative Option (please see Section 2 of Part III (Principal Terms of the Disposal) for further information). This would give rise to the payment of £19 million in cash by the Purchaser to the Seller on Closing in lieu of the issue of the Consideration Shares (meaning that the total consideration would then be £189 million rather than £200 million).
The Disposal is conditional upon: (i) completion of the Hive Down Agreement (which condition is expected to have been satisfied prior to the General Meeting); (ii) the passing of the Disposal Resolution by Shareholders at the General Meeting; and (iii) the Company obtaining certain consents from the lenders under the Group's finance facilities in relation to the Consideration Shares. All of these consents under the Group's finance facilities to permit the Disposal were received on 18 September 2012. The Disposal Agreement will terminate if these conditions are not satisfied on or before 11.59 p.m. on 26 October 2012. If the Disposal Agreement so terminates, the Seller will indemnify the Purchaser (on demand and on an aftertax basis) against all out-of-pocket expenses and third party costs, charges, fees and expenses reasonably and properly incurred by it in connection with its investigation of the business, assets and affairs of HSSL and the preparation of and entry into any relevant transaction documents, provided that the total liability of the Seller will not exceed £1 million.
The Disposal Agreement may be terminated by the Purchaser, at its discretion, if a "material adverse change" event (as outlined in the Disposal Agreement) occurs at any time between the date of the Disposal Agreement and Closing. These "material adverse change" events are limited in scope and customary for such a disposal agreement.
The principal terms of the Disposal are set out in more detail in Part III (Principal Terms of the Disposal) of this document.
Pursuant to the terms of the Group's refinancing agreed in March 2012, the Group is required to realise proceeds from certain planned disposals equal to the Aggregate Proceeds by 30 June 2014 (as further described in Section 7.1 of Part VI (Additional Information)). The Bank Facilities Agreement further stipulates that £264 million of the Aggregate Proceeds is required to be realised by 31 December 2013 and that £300 million of the Aggregate Proceeds is required to be realised by 31 March 2014. The proceeds from the Disposal represent a significant step towards meeting these requirements.
The gross cash proceeds of the Disposal, together with the value of the Consideration Shares at Closing, are expected to be at least £200 million after the adjustment for a normalised level of stock at Closing. These gross proceeds will be applied to reduce Group net debt. The proceeds of the Disposal, together with the value of the Consideration Shares at Closing, are expected to be £195 million after deducting expenses.
The Seller will receive the Consideration in the form of a cash payment of £170 million on Closing and the issue of Consideration Shares worth at least £30 million as at Closing (as more particularly described in Section 2 of Part III (Principal Terms of the Disposal) of this document) to the Seller on the third Trading Day after Closing. The Seller intends to dispose of the Consideration Shares in due course, subject to market conditions.
If, as is anticipated, the Seller chooses not to exercise the Cash Alternative Option at or prior to Closing, there is a risk that the value of the Consideration Shares may decrease between the issue of the Consideration Shares to the Seller and the disposal of those shares by the Seller. Please refer to Section 13 of Part VI (Additional Information) for background information on the historical share price of Hain. In order to mitigate the risk of a decrease in the Hain share price between Closing and the disposal of the Consideration Shares by the Seller, the Seller entered into the Collar Option on 21 September 2012 (as further described in Section 7.1 of Part VI (Additional Information)).
In July 2012, the Group completed the disposal of its vinegar and sour pickles business and the disposal of its Elephant Atta ethnic flour business. If the proceeds of these disposals are aggregated with: (i) the cash proceeds from the Disposal; and (ii) the amount the Seller expects to realise as a result of the combined effect of the Collar Option and the disposal of the Consideration Shares, the Company would have generated proceeds of at least £275 million, which would fulfil the first disposal threshold of £264 million.
If the Directors believe that the Seller would be unable to monetise the Consideration Shares within a reasonable timeframe after the issue of the Consideration Shares, the Seller would consider exercising the Cash Alternative Option which would give rise to the payment of £19 million in cash by the Purchaser to the Seller on Closing in lieu of the issue of the Consideration Shares (please see Section 2 of Part III (Principal Terms of the Disposal) for further information). If this option were exercised, it would enable the Group to meet its disposal obligations under the Group's finance facilities to realise £264 million of the Aggregate Proceeds by 31 December 2013.
If this option were exercised, the Directors believe that the Group would be able to generate sufficient proceeds from the disposal of other assets to meet the £300 million threshold by the 31 March 2014 deadline and the Aggregate Proceeds threshold by the 30 June 2014 deadline despite the reduction in the anticipated proceeds from the Disposal. However, as further described in Section 2(A) of Part II (Risk Factors), in order to dispose of assets other than those relating to the Planned Disposals ("Non-Planned Disposals"), the Group would be required to obtain 662 ⁄3 per cent. majority lender consent. In this situation, the Directors are unable to express any confidence that such majority lender consents would be obtained.
The Disposal is expected to be initially dilutive to earnings. This statement does not constitute a profit forecast and should not be interpreted to mean that the Continuing Group's earnings per share for 2012 will necessarily match, or be greater or less than, historical published earnings per share.
On 7 August 2012, the Group published its unaudited consolidated financial information for the six months ended 30 June 2012 which contained the following commentary on the Group's current trading and prospects:
In the first six months of the year, the Group has made progress in stabilising the business, re-focusing the portfolio and investing in its future growth. The Group will continue with its divestment programme and plans to further reduce the costs of the business in 2013 as the programme progresses. Whilst we continue to meet our strategic priorities, the Group remains cautious against the backdrop of the current economic and trading environment. However, the Group's full year trading expectations remain unchanged.
The current trading and prospects of the Continuing Group are consistent with the commentary in respect of the Group set out above.
For a discussion of the risks and uncertainties which you should take into account when considering whether to vote in favour of the Disposal Resolution, please refer to Part II (Risk Factors) of this document.
Please vote on the resolution by post or through CREST or electronically or by attending the General Meeting in person or by proxy.
By post: please complete and return the enclosed postage prepaid Form of Proxy card by post or in person so that it is received by Equiniti, the Registrar, at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA as soon as possible and in any event by 9.00 a.m. on 23 October 2012.
CREST: if you are a corporate or individual member of CREST, please vote through CREST in accordance with the procedures set out in the CREST Manual. Your vote must be received before 9.00 a.m. on 23 October 2012.
Electronically: please register the appointment of a proxy electronically by logging on to www.sharevote.co.uk so that the appointment is received by the Registrar by no later than 9.00 a.m. on 23 October 2012. To use this service you will need your Voting ID, Task ID and Shareholder Reference Number printed on the accompanying Form of Proxy. Full details of the procedure are given on the website.
In person: please attend the General Meeting at London Hilton on Park Lane, 22 Park Lane, London W1K 1BE on 25 October 2012 at 9.00 a.m. or send your duly appointed proxy to vote for you.
Full details of how to vote or appoint a proxy to vote for you are set out in the Notice of General Meeting on pages 52 to 54 of this document. The completion of your Form of Proxy or CREST or electronic vote will not preclude you from attending the meeting in person. Even if you intend to attend the meeting, please complete and return a Form of Proxy or vote through CREST or electronically. A proxy need not be a member of the Company.
Pursuant to the terms of the Group's refinancing agreed in March 2012, the Group is required to realise proceeds from the Planned Disposals equal to the Aggregate Proceeds by 30 June 2014. The Bank Facilities Agreement further stipulates that £264 million of the Aggregate Proceeds is required to be realised by 31 December 2013 and that £300 million of the Aggregate Proceeds is required to be realised by 31 March 2014. The proceeds from the Disposal represent a significant step towards meeting these requirements.
In July 2012, the Group completed the disposal of its vinegar and sour pickles business and the disposal of its Elephant Atta ethnic flour business. If the proceeds of these disposals are aggregated with: (i) the cash proceeds from the Disposal; and (ii) the amount the Seller expects to realise as a result of the combined effect of the Collar Option and the disposal of the Consideration Shares, the Company would have generated proceeds of at least £275 million, which would fulfil the first disposal threshold of £264 million.
If shareholders do not approve the Disposal, the Company would seek to realise sufficient proceeds from the disposal of other assets. The Directors believe that the Company would be able to generate sufficient proceeds from the disposal of other assets to meet the £264 million threshold by the 31 December 2013 deadline, the £300 million threshold by the 31 March 2014 deadline and the Aggregate Proceeds threshold by the 30 June 2013 deadline. However, in order to undertake any Non-Planned Disposals, the Group would be required to obtain 662 ⁄3 per cent. majority lender consent. In this situation, as a result of the requirement to obtain 662 ⁄3 per cent. majority lender consent to any Non-Planned Disposals, the Directors are unable to express any confidence that: (i) the £264 million threshold would be met by the 31 December 2013 deadline; (ii) the £300 million threshold would be met by the 31 March 2014 deadline; or (iii) the Aggregate Proceeds threshold would be met by the 30 June 2014 deadline.
If the Company were to fail to meet the £264 million threshold by the 31 December 2013 deadline, the £300 million threshold by the 31 March 2014 deadline or the Aggregate Proceeds threshold by the 30 June 2014 deadline, the leverage ratio for the relevant test period (which ends on the relevant threshold deadline) would, under the Bank Facilities Agreement, be amended to be tested at a level of 2:1 by reference to the most recent audited financial statements delivered to the lenders and the monthly management accounts for the relevant period. Unless the leverage ratio were amended or waived with 662 ⁄3 per cent. majority lender consent (which the Company would seek to obtain), the Group would be unlikely to meet a test of leverage at this level. The Directors are unable to express any confidence that such an amendment or waiver would be forthcoming, given that the receipt of any such amendment or waiver would depend on the prevailing circumstances at that time. Unless such an amendment or waiver were obtained, an event default would arise on the date falling 30 days after the relevant threshold deadline. If such an event of default were to occur, the majority lenders would have the right to accelerate the debt and to enforce their security over the Group's assets if the Group were unable to repay the amounts borrowed, which could result in an insolvency event.
In addition, the Seller may be exposed to losses pursuant to the Collar Option if: (i) shareholders do not approve the Disposal; and (ii) between Closing and the close-out of the options under the Collar Option the Hain share price increases above the agreed cap level in the Collar Option, as this would require a payment from the Seller to the counterparty in respect of the difference between the share price at the close-out of the options under the Collar Option and the agreed cap level. In these circumstances, the maximum aggregate amount that the Seller would be required to pay to the hedge counterparty in respect of the Hain share price being above the cap when the options are exercised is limited to £37.5 million. However, the Directors consider that a payment to the hedge counterparty of this magnitude would arise only in exceptional circumstances.
Your attention is drawn to the further information set out in Part VI (Additional Information) of this document.
The Board, which has received financial advice from Spayne Lindsay, considers the terms of the Disposal to be in the best interests of the shareholders of the Company taken as a whole. In giving its financial advice to the Board, Spayne Lindsay has relied on the Board's commercial assessment of the Disposal.
Accordingly, the Board unanimously recommends that you vote in favour of the Disposal Resolution to be proposed at the General Meeting, as the Directors intend to do in respect of their own beneficial holdings, which amount in aggregate to 2,148,941 Ordinary Shares and represent approximately 0.896 per cent. of Premier Foods' issued share capital as at close of business on 27 September 2012 (the latest practicable date prior to publication of this document).
Yours faithfully,
David Beever Non-executive Chairman
28 September 2012
This Part II addresses the risks known to Premier Foods and the Directors to which the Group is exposed, which could materially and adversely affect the business, results of operations, financial condition, turnover, profits and assets of the Group, as appropriate. In such cases, the market price of the Ordinary Shares may decline and investors may lose all or part of their investment. Prior to voting on the Disposal, Shareholders should consider these risks fully and carefully, together with all other information set out in this document.
Additional risks and uncertainties currently unknown to Premier Foods and the Directors, or which Premier Foods and the Directors currently deem immaterial, may also have an adverse effect on the financial condition or business of the Group and/or the Continuing Group.
The following risks and uncertainties relate to the Disposal:
The Disposal Agreement contains certain warranties and indemnities given by the Seller in favour of the Purchaser. In addition, the Hive Down Agreement contains certain warranties and indemnities given by the Seller in favour of HSSL in respect of the Business. If the Seller is required in the future to make payments under any of these warranties or indemnities, this would have an adverse effect on the Group's cash flow and financial condition.
The aggregate liability of the Seller for breaches of the provisions of the Disposal Agreement, the Hive Down Agreement and the related tax covenant will not exceed £200 million, and in addition, the aggregate liability of the Seller for breaches of the warranties in the Hive Down Agreement (except those warranties relating to the capacity or insolvency of the Seller) will not exceed £100 million. Further details of the Disposal Agreement and the Hive Down Agreement are set out in Part III (Principal Terms of the Disposal) of this document.
Closing under the Disposal Agreement is conditional upon: (a) the approval of Shareholders; (b) the completion of the Hive Down Agreement in accordance with its terms; and (c) the Company obtaining certain consents from the lenders under the Group's finance facilities in relation to the Consideration Shares. All of these consents under the Group's finance facilities to permit the Disposal were received on 18 September 2012. The Disposal Agreement also contains a limited number of provisions which would allow the Purchaser to terminate the agreement if certain "material adverse change" events were to occur. There can be no assurance that all conditions will be satisfied and no relevant events will occur which would allow the Purchaser to terminate the Disposal Agreement and, accordingly, that Closing will take place. If the Disposal does not complete, any of the risks and uncertainties set out in Section 2 of this Part II may affect the Group's business and results.
The Seller intends to dispose of the Consideration Shares in due course, subject to market conditions. If the Seller chooses not to exercise the Cash Alternative Option at or prior to Closing, there is a risk that the value of the Consideration Shares may decrease between the issue of the Consideration Shares to the Seller and the disposal of those shares by the Seller. Please refer to Section 13 of Part VI (Additional Information) for background information on the historical share price of Hain.
In order to hedge against the risk of a decrease in the Hain share price between Closing and the disposal of the Consideration Shares by the Seller and to lock in the benefit of the appreciation of the Hain share price between the date of the Disposal Agreement and the setting of the floor price under the Collar Option, the Seller has entered into the Collar Option (as further described in Section 7.1 of Part VI (Additional Information)), which will be settled in cash. The Seller expects to realise an amount equal to at least £30 million as a result of the combined effect of the Collar Option and the disposal of the Consideration Shares.
There is, however, a risk that the Seller may realise less than £30 million in respect of the combined effect of the Collar Option and the disposal of the Consideration Shares. That amount is, most significantly, dependent on the interaction between: (i) the value at which the floor price is set under the Collar Option; and (ii) the difference between the amount realised in respect of the disposal of the Consideration Shares and the average value of the Hain share price at which the options under the Collar Option close-out. The Seller may realise less than £30 million in respect of the combined effect of the Collar Option and the disposal of the Consideration Shares if: (i) the Hain share price or the foreign exchange rate of US\$ to GBP decreases sufficiently during the period in respect of which the floor price is set (see Section 7.1 of Part VI (Additional Information) for further information); and/or (ii) the average Hain share price and/or the average foreign exchange rate of US\$ to GBP at which the options under the Collar Option close out is sufficiently greater than the average Hain share price and/or the average foreign exchange rate of US\$ to GBP at which the Consideration Shares are disposed of by the Seller.
If the Directors believe that the Seller would be unable to monetise the Consideration Shares within a reasonable timeframe after the issue of the Consideration Shares, the Seller would consider exercising the Cash Alternative Option which would give rise to the payment of £19 million in cash by the Purchaser to the Seller on Closing in lieu of the issue of the Consideration Shares (please see Section 2 of Part III (Principal Terms of the Disposal) for further information). If this option were exercised, it would enable the Group to meet its disposal obligations under the Group's finance facilities to realise £264 million of the Aggregate Proceeds by 31 December 2013.
If this option were exercised, the Directors believe that the Group would be able to generate sufficient proceeds from the disposal of other assets to meet the £300 million threshold by the 31 March 2014 deadline and the Aggregate Proceeds threshold by the 30 June 2014 deadline despite the reduction in the anticipated proceeds from the Disposal. However, as further described in Section 2(A) of this Part II, in order to dispose of assets other than those relating to Non-Planned Disposals, the Group would be required to obtain 662 ⁄3 per cent. majority lender consent. In this situation, the Directors are unable to express any confidence that such majority lender consents would be obtained.
If the Cash Alternative Option were exercised, the Seller would be exposed to losses in respect of the Collar Option if, between Closing and the close out of the options under the Collar Option, the Hain share price increases above the agreed cap level in the Collar Option as this would require a payment from the Seller to the counterparty in respect of the difference between the share price and the agreed cap level. In this situation, the Seller would have no Consideration Shares to dispose of concurrently with the close-out of the options under the Collar Option in order to fund any such payment.
Under the Disposal Agreement and the Registration Rights Agreement (please see Sections 2 and 3 of Part III (Principal Terms of the Disposal) for further information), the Purchaser's Guarantor has agreed to take such specified actions as would be necessary to permit the public sale of the Consideration Shares which includes the filing with the SEC of a registration statement Form S-3ASR (or any successor thereto) covering the resale of the Consideration Shares (the "Registration Statement") and the prospectus supplement or post-effective amendment to Form S-3ASR which will name the Seller (or its nominee) as the selling shareholder (together, "SEC Registration"). If the Purchaser's Guarantor were to fail to comply with the relevant registration requirements such that SEC Registration were not to occur by 5:30pm (New York time) on the date the Consideration Shares are issued to the Seller (the "Registration Time"), the Seller would have the option, exercisable by giving written notice to the Purchaser's Guarantor before 5:30pm (NewYork time) on the Trading Day following the Registration Time, to require the Purchaser's Guarantor to re-purchase all of the Consideration Shares from the Seller for £30 million. The Registration Option therefore mitigates the risk that, if the Purchaser's Guarantor were to fail to comply with the relevant registration requirements as a result of which there were no SEC Registration, pursuant to SEC Rule 144, the Group would be required to hold the Consideration Shares for a period of at least six months following Closing before it could sell the Consideration Shares on the public markets in the United States (including on NASDAQ, where the shares of the Purchaser are listed).
If the Registration Option were exercised, the Seller would be exposed to losses in respect of the Collar Option if, between Closing and the close-out of the options under the Collar Option, the Hain share price increases above the agreed cap level in the Collar Option as this would require a payment from the Seller to the counterparty in respect of the difference between the share price and the agreed cap level. In this situation, the Seller would have no Consideration Shares to dispose of concurrently with the close-out of the options under the Collar Option in order to fund any such payment.
Even if SEC Registration is completed, the Purchaser's Guarantor retains the ability to suspend public sales of the Consideration Shares following a determination by the Purchaser's Guarantor that the Registration Statement or any related document (including any document incorporated by reference into the Registration Statement) contains a material misstatement or material omission. If sales were to be suspended prior to the disposal of all of the Consideration Shares, the Group would be unable to sell any Consideration Shares held by the Group at the time of suspension until the earlier of: (a) the termination of such suspension; and (b) under SEC Rule 144, six months following Closing. In the unlikely event that the Purchaser's Guarantor were to cease to be an SEC reporting company, the sixmonth holding period would become a one-year holding period. With respect to the period between the Registration Time and the date on which the Consideration Shares are sold pursuant to the Registration Statement, the Registration Rights Agreement requires the Purchaser's Guarantor to use its commercially reasonable efforts to keep the Registration Statement continuously effective, as well as maintaining the Consideration Shares listed and actively traded on NASDAQ. The Purchaser's Guarantor has also agreed to use its best efforts to take actions necessary so that Rule 144 remains available for sales of the Consideration Shares (if required).
If the Disposal does not proceed, the following risks and uncertainties may affect the Group's business and results:
Pursuant to the terms of the Group's refinancing agreed in March 2012, the Group is required to realise proceeds from the Planned Disposals equal to the Aggregate Proceeds by 30 June 2014. The Bank Facilities Agreement further stipulates that £264 million of the Aggregate Proceeds is required to be realised by 31 December 2013 and that £300 million of the Aggregate Proceeds is required to be realised by 31 March 2014. The proceeds from the Disposal represent a significant step towards meeting these requirements.
In July 2012, the Group completed the disposal of its vinegar and sour pickles business and the disposal of its Elephant Atta ethnic flour business. If the proceeds of these disposals are aggregated with: (i) the cash proceeds from the Disposal; and (ii) the amount the Seller expects to realise as a result of the combined effect of the Collar Option and the disposal of the Consideration Shares, the Company would have generated proceeds of at least £275 million, which would fulfil the first disposal threshold of £264 million.
If shareholders do not approve the Disposal, the Company would seek to realise sufficient proceeds from the disposal of other assets. The Directors believe that the Company would be able to generate sufficient proceeds from the disposal of other assets to meet the £264 million threshold by the 31 December 2013 deadline, the £300 million threshold by the 31 March 2014 deadline and the Aggregate Proceeds threshold by the 30 June 2013 deadline. However, in order to undertake any Non-Planned Disposals the Group would be required to obtain 662 ⁄3 per cent. majority lender consent. In this situation, as a result of the requirement to obtain 662 ⁄3 per cent. majority lender consent to any Non-Planned Disposals, the Directors are unable to express any confidence that: (i) the £264 million threshold would be met by the 31 December 2013 deadline; (ii) the £300 million threshold would be met by the 31 March 2014 deadline; or (iii) the Aggregate Proceeds threshold would be met by the 30 June 2014 deadline.
If the Company were to fail to meet the £264 million threshold by the 31 December 2013 deadline, the £300 million threshold by the 31 March 2014 deadline or the Aggregate Proceeds threshold by the 30 June 2014 deadline, the leverage ratio for the relevant test period (which ends on the relevant threshold deadline) would, under the Bank Facilities Agreement, be amended to be tested at a level of 2:1 by reference to the most recent audited financial statements delivered to the lenders and the monthly management accounts for the relevant period. Unless the leverage ratio were amended or waived with 662 ⁄3 per cent. majority lender consent (which the Company would seek to obtain), the Group would be unlikely to meet a test of leverage at this level. The Directors are unable to express any confidence that such an amendment or waiver would be forthcoming, given that the receipt of any such amendment or waiver would depend on the prevailing circumstances at that time. Unless such an amendment or waiver were obtained, an event default would arise on the date falling 30 days after the relevant threshold deadline. If such an event of default were to occur, the majority lenders would have the right to accelerate the debt and to enforce their security over the Group's assets if the Group were unable to repay the amounts borrowed which could result in an insolvency event.
The Seller may be exposed to losses pursuant to the Collar Option if: (i) shareholders do not approve the Disposal; and (ii) between Closing and the close-out of the options under the Collar Option the Hain share price increases above the agreed cap level in the Collar Option, as this would require a payment from the Seller to the counterparty in respect of the difference between the share price at the close-out of the options under the Collar Option and the agreed cap level. In this situation, the Seller would have no Consideration Shares to dispose of concurrently with the close-out of the options under the Collar Option in order to fund any such payment. In these circumstances, the maximum aggregate amount that the Seller would be required to pay to the hedge counterparty in respect of the Hain share price being above the cap when the options are exercised is limited to £37.5 million.
The Board believes that the Disposal is in the best interest of Shareholders taken as a whole and that it currently provides the best opportunity to realise an attractive and certain value for the Business. If the Disposal does not complete, the value to the Company of the Business may be lower than can be realised by way of the Disposal.
If the Disposal does not proceed, the Business's management and employees may be affected and key management or employees may choose to leave the Business. This may have a negative effect on the performance of the Business under Premier Foods' ownership. To maintain shareholder value, Premier Foods' management would be required to continue to allocate time and cost to the ongoing supervision and development of the Business.
The Group purchases a significant amount of raw materials each year, the total cost of which can vary as a result of fluctuations in commodity prices. For example, wheat prices increased sharply in July 2012 owing to recent global weather trends. Any inability or delay in: (a) passing on increases in the cost of raw materials to its customers; or (b) sourcing raw materials of an acceptable type or quality, could adversely affect the results of the Group.
The Group's businesses could be adversely affected by a worsening of general economic conditions. The Group believes that factors such as interest rates, inflation, investor sentiment, the availability and cost of credit and the liquidity of the global financial markets have affected the purchasing habits of consumers. In periods of economic downturn, consumers may seek to economise by purchasing more retailer-branded or economy brands or brands that are offered at promotional prices. As a result, a deeper and more prolonged economic downturn may lead to a decline in the volume of sales of premium and branded products to the extent that consumers move to more value-oriented products or may require the Group to increase the level of promotional activity to maintain the volume of sales, which could adversely affect the results of the Group's operations.
Approximately 56 per cent. of the Group's total sales for 2011 was generated from five major UK multiple retailers. The results of the Group's operations could be adversely affected if these customers suffer any significant deterioration in their sales performance or if the Group is required to reduce its prices, alter the specifications of its retailer-branded products, or increase its promotional costs as a consequence of an increase in the strength of such retailers' bargaining position or a deterioration in the Group's relationship with one of the major multiple retailers, or if the Group loses business from a major retailer customer. Further, the Group's retailer customers offer branded and retailer-branded products that compete directly with the Group's products for retail shelf space and consumer purchases. Accordingly, there is a risk that the Group's customers may give higher priority to their own products or to the products of the Group's competitors. If the Group's retail customers do not continue to purchase its products, or provide its products with similar levels of promotional support, the Group's sales performance could be adversely affected.
As a manufacturer of products intended for human consumption, the Group is subject to extensive regulation. The Group's operations and property are subject to legislation and regulation in the United Kingdom and from the European Union, including with respect to: product composition, manufacturing, storage, handling, packaging, labelling, advertising and the safety of its products; the health, safety and working conditions of its employees; the Group's pensions; and its competitive and marketplace conduct. The Group's operations and properties, past and present, are also subject to a wide variety of UK, EU and local laws and regulations.
Although the Group is committed to conducting its operations in a socially responsible manner and has in place appropriate systems for identifying and managing potential liabilities, it may not have identified or addressed all sources of health, safety and environmental risks, and there can be no assurance that the Group will not incur health, safety and environmental related losses or that any losses incurred will not have a material adverse effect on the Group's results of operations or financial condition. In addition, if the costs of compliance with health, safety and environmental laws and regulations continue to increase and it is not possible for the Group to integrate these additional costs into the price of its products, any such changes could reduce the Group's profitability. Changes in applicable laws or regulations or evolving interpretations thereof may result in increased compliance costs, capital expenditures and other financial obligations which could affect the Group's profitability or impede the production or distribution of its products and affect its net operating revenues.
Although the Group has a large network of suppliers due to the large number of materials it sources, the Group purchases a significant amount of materials from a relatively small number of suppliers. In 2011, the Group's top 25 suppliers accounted for 35 per cent. of its total expenditure on raw materials. In particular, the Group is materially dependent on key suppliers for its glass and metal packaging. Further, the Group sources certain materials from a small number of suppliers, as a result of which it is materially dependent on such suppliers even though they may account for only a small percentage of the Group's total costs. A majority of the Group's relationships with these suppliers are not based on long-term sales agreements or other contractual assurances of future supplies and could, as a consequence, be varied and terminated at any time.
A loss of any of the Group's key suppliers could cause short-term interruptions in its supply chain and adversely affect the ordinary course of the operation of its businesses. Disruptions in the operations or a business failure of any of the Group's key suppliers could also have a material adverse effect on the Group's businesses and on its operating profit or put at risk the relationship with these suppliers.
As is common in the food industry, many suppliers use credit insurance to reduce the risk of exposure to the Group. The credit extended by suppliers is an important part of the Group's funding. This exposes the Group to the risk of its suppliers wanting to reduce their credit exposure to it. If the level of credit insurance available to the Group's suppliers were to reduce, then the Group may also face demands for changes in payment terms by its key suppliers or they may refuse to continue to supply the Group. This could have a material and adverse effect upon the Group's financial position.
The Group itself faces a credit risk in relation to its customers (insofar as their payments are uninsured by the Group) and, due to the current volatile market conditions, credit insurance policies to insure the Group against credit risk of its customers may not be available on commercially reasonable terms or at all. Whilst the majority of the Group's customers are large, established retail organisations with good credit records, exposure to the default of third parties, including financial institutions and customers with bad debts, may have an adverse impact on the Group's operating and financial performance.
The Group's brands are a key asset to its business and maintaining their reputation is critical to the Group's success. Most of the Group's key brands have been marketed for several decades. The Group's marketing teams must continue to support its brands through investment in new product development, product repackaging, brand relaunches and marketing efforts in order to continue to generate revenues and maintain or increase market share. If the Group is not successful in its brand management efforts or the reputation of any of its key brands is adversely affected, such as through a product recall, the results of the Group's operations and its profitability could be materially and adversely affected.
Whilst the majority of the intellectual property used in the Group's business is owned, the Group has entered into medium to long-term licensing arrangements for the use of certain brands (including its Loyd Grossman brand of sauces and soups and Cadbury for cakes and home baking). When these licensing arrangements expire, they may not be renewable on terms acceptable to the Group or at all. The failure to renew one or more of the Group's licences could have an adverse effect on the results of its operations.
The Group owns a substantial number of registered trade marks and unregistered trade mark rights in countries throughout the world for use in connection with the sale and marketing of branded products. The Group's principal trade marks are registered in the United Kingdom, and it has trade mark registrations for various products in more than 100 other countries.
Whilst the Group intends to enforce its trade mark, patent and licensed rights against infringement by third parties, the Group's actions to establish and protect its intellectual property may not be adequate to prevent imitation of its products by others or to prevent others from seeking to block sales of the Group's products which, in their opinion, violate their trade marks or other intellectual property rights. If a competitor were to infringe intellectual property held by, or licensed to, the Group, enforcing the Group's rights would be likely to be costly and could potentially divert funds and resources that could otherwise be used to operate the Group's business.
The sale of the Group's products could be adversely affected if production at one of its factories were to be disrupted, for example, by fire or flood or inadequate or failed internal information technology processes and systems. Although the Group has disaster recovery plans in place for most anticipated disruptive events, in certain cases the Group may not be able to find alternative sources of production or IT back-up. Such a loss of capability would have an adverse effect on the results of the Group's operations.
Further, whilst the Group believes that its insurance is adequate, there can be no assurance that such insurance will continue to be available on acceptable terms or that the full amount of any particular claim will be recoverable under the insurance.
The Group's products are subject to a number of supply, manufacturing, packaging and distribution processes. A failure to control the quality of these processes, or the occurrence of some other event (for example, a third party contamination or tampering incident), may result in the need to take remedial action such as issuing warnings, withdrawing one or more batches of the Group's products or destruction of inventory. Such occurrences may harm the Group's relationships, both with consumers of its goods and with its customers, and may, where the product is branded, damage the reputation of such brand as well as other brands in the Group's portfolio. If such branded product is manufactured under agreement or licence, such a quality control failure may also result in the termination of the relevant agreement or licence. The Group takes product quality very seriously and has rigorous quality assurance processes in place to minimise any potential risk. Nonetheless, any of these circumstances could have an adverse effect on the Group's business and the results of its operations.
The Group's performance depends significantly on the efforts and expertise of its key personnel. The unexpected loss of the services of one or more of these individuals could have an adverse effect on the results of the Group's operations. With the Group in a period of stabilisation, investing for future growth and given the current economic and trading environment, there is a risk of fatigue, stretched resources and an over-dependence on key personnel. Although the Group seeks to reduce this risk by giving managers authority within their areas of responsibility and ensuring that they are suitably incentivised, there can be no assurances that the Group can attract, retain or replace key personnel.
Although the Company has clear reporting structures in place to manage the process of business separation and dedicated teams coordinating all separation work streams, the transitional services agreements contemplated by certain material contracts detailed below in Part VI (Additional Information) of this document, which relate to the Group's ongoing divestment programme that began in 2011, could give rise to the material risks associated with business separation. In particular, the ongoing business separation may represent a significant burden on the Company's support functions, which may adversely affect customer relationships, disrupt synergies in working practices and lead to cost increases for its core business.
The Group suffered a significant deterioration in its trading performance in 2011. In order to achieve the Group's plan to stabilise the business, management has focused investment on its eight Power Brands, which it believes have the strongest potential for long-term, sustainable growth. This strategic focus will result in the selective divestments of non-core business and significant cost-saving initiatives to improve the underlying financial performance of the Group's business. During 2012, management has targeted £40 million of cost savings and has already completed a number of divestments. These divestments involve complex transitional support arrangements for the respective purchasers and may also result in dissynergies across the remaining Group. All or any of these initiatives may fail to improve financial performance, or fail to occur at all, which may have adverse consequences on the Group's financial position.
The Group's trading performance may be further affected by competition from well-established companies that operate on both a national and international basis in the grocery sector. A deeper and more prolonged economic downturn could lead to an increase in competitor promotional activity and, to ensure that its products remain competitive, the Group may be required to reduce its prices as a result of price reductions or promotional sales undertaken by its competitors. If the Group is unable to continue to compete successfully, its business could be materially and adversely affected.
As part of the divestment process which began in 2011, the Group has given representations, warranties and indemnities pursuant to various disposal agreements, in favour of the respective purchasers. Please refer to Part VI (Additional Information), Section 7 (Material Contracts) for further information on these disposal agreements. Despite the inclusion of customary limitation of liability provisions in these disposal agreements, it is still possible that a purchaser may make a claim against the Group in respect of such representations, warranties or indemnities. If a successful claim is made by a purchaser, the Group will be liable to make a payment to such purchaser.
As at 30 June 2012, the Group had total net debt of £1,269 million. The Group anticipates that its debt will remain significant for the foreseeable future (reducing over time in accordance with relevant repayment provisions and realisation of further disposal proceeds). The Group's level of leverage poses risks that: (i) a greater portion of the cash flow from its operations than anticipated will have to be dedicated to servicing the Group's debt (for example, due to a rise in its effective interest rates or a decline in the performance of the Group); (ii) the Group may have a much higher level of debt than certain of its competitors, which may constrain the Group's marketing expenditure, thereby adversely affecting sales and the results of its operations (iii) the Group's debt level and financial covenants may limit its ability to react to changing market conditions, changes in its business and changes in the industry in which it operates.
The Group's current financing arrangements are due to expire in June 2016. Upon expiry, the Group may face difficulties refinancing these facilities on commercially reasonable terms or at all. If the Group is unable to refinance these facilities, it could experience a material adverse effect on its liquidity, financial position or results of operations. The risk that the Group is unable to refinance its facilities can be impacted by a range of institution-specific and market-wide events including, but not limited to, trading conditions, credit events, merger and acquisition activity, systemic shocks and natural disasters.
Although the Group's main functional currency and its reporting currency is pounds sterling, the Group sources raw materials from, and exports its products to, various countries. In addition, the Group generates some of its profits in non-sterling currencies. Therefore, the Group's financial position and the results of its operations are subject to currency transaction risk. Whilst the Group enters into forward currency contracts and uses other derivative instruments to partially hedge against its exposure to foreign currency exchange rate fluctuations, and also partially hedges the exposure resulting from its euro-denominated profits, sustained movement in exchange rates will increase or decrease the value of the Group's turnover, costs or assets as reported in pounds sterling. As a result, the Group cannot guarantee that exchange rate fluctuations will not have an adverse effect on the results of its operations.
As further discussed in Section 1(C) of this Part II, the amount which the Seller will receive as a result of the combined effect of the Collar Option and the disposal of the Consideration Shares is also subject to fluctuations in the foreign exchange rate of US\$ to GBP.
The Disposal will be effected by way of: (a) the sale of the assets of the Business by the Seller to HSSL, a wholly-owned subsidiary of the Seller, pursuant to the terms of the Hive Down Agreement; and (b) the sale of the entire issued share capital of HSSL and the assignment of the right to repayment of the Business Consideration Debt to the Purchaser pursuant to the terms of the Disposal Agreement. Pursuant to the Registration Rights Agreement, the Purchaser's Guarantor has agreed to take such specified actions as would be necessary to permit the public sale of the Consideration Shares
The principal terms of the Disposal Agreement, the Hive Down Agreement and the Registration Rights Agreement are set out in this Part III.
The Hive Down Agreement will be entered into between the Seller and HSSL pursuant to the terms of the Disposal Agreement. Under the terms of the Hive Down Agreement, the Seller will sell, and HSSL will purchase, the assets comprising the Business. It is anticipated that the Hive Down Agreement will be entered into and completed on 20 October 2012.
The total consideration payable by HSSL to the Seller for the Business will be £200 million (the "Hive Down Consideration"). The Hive Down Consideration will be settled in part by the issue of £10 million worth of shares in HSSL to the Seller with the balance of £190 million being left outstanding on inter-company account (the "Business Consideration Debt").
Each party has given certain warranties and indemnities which are customary for an arm's length agreement of this nature. From Closing, the Purchaser will be able to enforce (through its ownership of HSSL) the warranties and indemnities given by the Seller in the Hive Down Agreement.
The aggregate liability of the Seller for breaches of the provisions of the Hive Down Agreement, the Disposal Agreement and the related tax covenant will not exceed £200 million and, in addition, the aggregate liability of the Seller for breaches of most of the warranties in the Hive Down Agreement will not exceed £100 million.
HSSL will not be entitled to recover any amount in respect of warranty claims under the Hive Down Agreement (except those warranties relating to the capacity or insolvency of the Seller) unless the aggregate value of such claims exceeds £5 million. Any individual claim in respect of the warranties given by the Seller in the Hive Down Agreement (except those warranties relating to the capacity or insolvency of the Seller) cannot be recovered unless the value of such individual claim is equal to or greater than £100,000.
Claims in respect of the non-tax warranties must be brought within 24 months after the date of completion of the Hive Down Agreement. Claims in respect of the tax warranties must be brought within five years after the date of completion of the Hive Down Agreement.
The following additional documents will be entered into or become effective on completion of the Hive Down Agreement:
(i) a co-packaging agreement to allow certain of the Seller's products to be manufactured, packaged and delivered by HSSL in the future (the "Seller Co-pack Agreement");
The Hive Down Agreement will be governed by English law.
The Disposal Agreement was entered into on 22 August 2012 between the Company, the Seller, the Purchaser and the Purchaser's Guarantor for the sale and purchase of the entire issued share capital of HSSL and the assignment of the right to repayment of the Business Consideration Debt.
The total consideration payable by the Purchaser to the Seller for the entire issued share capital of HSSL and the assignment of the right to repayment of the Business Consideration Debt shall be £200 million (the "Purchase Price"). The Purchase Price will be satisfied by a cash payment of £170 million on Closing and the issue of the Consideration Shares on the third Trading Day after Closing.
The number of Consideration Shares to be issued to the Seller will be the greater of:
The Purchase Price is subject to a customary adjustment for a normalised level of stock. On the day of Closing, the Purchaser and the Seller will undertake a stock count in respect of the Business. Within 30 business days after completion of that stock count, the Seller will prepare and deliver to the Purchaser a stock statement in respect of the Business as at the date of Closing. The Purchase Price will be reduced or increased as appropriate, on a pound-for-pound basis, by the amount by which the stock value at closing, as agreed or determined, is less than or exceeds £17 million.
The Purchase Price is also subject to adjustments in respect of the net profits and tax liability of HSSL, in each case, for the period between completion of the Hive Down Agreement and Closing.
Under the terms of the Disposal Agreement, the Seller has the option to require the Purchaser to pay £19 million in cash to the Seller on Closing in lieu of the issue of the Consideration Shares (the "Cash Alternative Option"). This option may be exercised wholly at the Seller's discretion at any time between 4.00 p.m. New York time on the Trading Day before Closing and the time of Closing. Whilst the Directors do not anticipate that the Seller will exercise this option, if exercised, it would enable the Group to meet its disposal obligations under the Group's finance facilities to realise £264 million of the Aggregate Proceeds by 31 December 2013.
If the Purchaser's Guarantor fails to comply with the relevant registration requirements, such that SEC Registration were not to occur by the Registration Time, then the Seller will have the option, exercisable by giving written notice to the Purchaser's Guarantor before 5.30 p.m. (New York time) on the Trading Day following the Registration Time, to require the Purchaser's Guarantor to repurchase all of the Consideration Shares from the Seller for £30 million (the "Registration Option").
Closing is conditional on:
The Disposal Agreement will terminate if conditions relating to the Disposal are not satisfied on or before 11.59 p.m. on 26 October 2012. If the Disposal Agreement so terminates, the Seller will indemnify the Purchaser (on demand and on an after-tax basis) against all out-of-pocket expenses and third party costs, charges, fees and expenses reasonably and properly incurred by it in connection with its investigation of the business, assets and affairs of HSSL and the preparation of and entry into any relevant transaction documents, provided that the total liability of the Seller will not exceed £1 million.
The Purchaser's Guarantor has guaranteed the Purchaser's obligations, commitments and undertakings under the Disposal Agreement, the Hive Down Agreement and certain other documents entered into in connection with the Disposal.
The Company has guaranteed the Seller's obligations, commitments and undertakings under the Disposal Agreement, the Hive Down Agreement and certain other documents entered into in connection with the Disposal.
The Seller and the Purchaser have given certain warranties and indemnities which are customary for an agreement of this nature.
Generally, the aggregate liability of the Seller for breaches of the provisions of the Hive Down Agreement, the Disposal Agreement and the related tax covenant will not exceed £200 million. Claims in respect of the warranties given in the Disposal Agreement must be brought within 24 months after the date of completion of the Disposal Agreement.
The Seller has undertaken that the Business will continue to trade in the ordinary course of business until Closing. The Seller has also given non-compete undertakings regarding the Business's products and non-solicitation undertakings regarding the Business's employees, in each for a period of 36 months following Closing and with exceptions allowing the Group to continue to operate its retained businesses in the ordinary course. These undertakings are customary for a transaction of this nature.
The Disposal Agreement may be terminated:
(i) by written agreement of the Purchaser and the Seller at any time prior to Closing;
Under the Disposal Agreement, the Seller will provide (or procure the provision of) certain transitional services to the Business for a period following Closing.
Pursuant to the tax covenant, the Seller has agreed to be responsible for certain pre-Closing tax liabilities of HSSL and to pay to the Purchaser an amount equal to any such liabilities and reasonable out-of-pocket-expenses (the "Tax Covenant"). It is customary for purchasers on transactions of this nature to request that the sellers provide such a tax covenant. There is a counter-covenant under which the Purchaser has agreed to be responsible for post-Closing taxes of HSSL. Generally, any individual claims made by the Purchaser under the tax covenant of a value less than £25,000 cannot be recovered. Claims under the tax covenant must be brought within five years of Closing.
The Disposal Agreement is governed by English law.
The Purchaser's Guarantor, the Company and the Seller have entered into the Registration Rights Agreement pursuant to which the Purchaser's Guarantor has agreed to take such specified actions as would be necessary to permit the public sale of the Consideration Shares.
Amongst other rights granted to the Company and the Seller in respect of the registration of the Consideration Shares, the Purchaser's Guarantor is required to file the Registration Statement with the SEC by Closing. The Purchaser's Guarantor is also required to use its reasonable best efforts to otherwise effect the SEC Registration as soon as practicable including, unless the Seller has exercised the Cash Option, to prepare and file with the SEC, on the date the Consideration Shares are issued to the Seller, a prospectus supplement or post-effective amendment to Form S-3ASR which will name the Seller (or its nominee) as the selling shareholder. In addition, the Purchaser's Guarantor is required to use its commercially reasonable efforts to keep the Registration Statement continuously effective and to maintain the Consideration Shares listed and actively traded on NASDAQ until the date on which all the Consideration Shares have been sold pursuant to the Registration Statement (except if the Seller exercises its option to require the Purchaser's Guarantor to re-purchase all of the Consideration Shares from the Seller for £30 million).
Pursuant to the Registration Rights Agreement, the Purchaser's Guarantor is required to promptly notify the Company and the Seller of certain events, including the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement and a determination by the Purchaser's Guarantor that the Registration Statement contains a material misstatement or material omission. The Purchaser's Guarantor is also required to reasonably cooperate with the Company and the Seller in responding to questions of any intermediary engaged to sell the Consideration Shares and otherwise provide such additional due diligence information as the Company and the Seller may reasonably required to sell the Consideration Shares. Following a notice by the Purchaser's Guarantor that the Registration Statement or related documents (including documents incorporated by reference into the Registration Statement) contains a material misstatement or material omission, the Company and the Seller have agreed to discontinue the disposal of Consideration Shares until they receive an amended prospectus.
The Company and the Seller will bear the expense of any broker's discount or commission relating to the registration and sale of the Consideration Shares, as well as expenses of its own counsel.
The Registration Rights Agreement also contains customary indemnification and contribution provisions.
For the six months ended 30 June 2012, the unaudited financial information relating to the Business has been extracted without material adjustment from the underlying books and records used in preparing the unaudited interim consolidated financial information of the Company for the six months ended 30 June 2012. For the three years ended 31 December 2011, the financial information relating to the Business has been extracted without material adjustment from the underlying books and records used in preparing the audited consolidated financial statements of the Group for the three years ended 31 December 2011.
The financial information contained in this Part IV does not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The consolidated statutory accounts for Premier Foods in respect of the three financial years ended 31 December 2011 have been delivered to the Registrar of Companies. The auditors' reports in respect of the statutory accounts for each of these three periods were unqualified and did not contain statements under Section 237(2) or (3) of the Companies Act 1985 or, as the case may be, Section 498(2) or (3) of the Companies Act 2006.
The financial information contained in this Part IV has been prepared using the accounting policies of Premier Foods on a basis consistent with the accounting policies adopted in Premier Foods' latest annual accounts.
Shareholders should read the whole of this document and not rely solely on the financial information contained in this Part IV.
(i) Income statement (on an IFRS basis) for the three years ended 31 December 2011 and six months ended 30 June 2012:
| Six months | ||||
|---|---|---|---|---|
| Year ended | Year ended | Year ended | ended | |
| 31 December | 31 December | 31 December | 30 June | |
| 2009 | 2010 | 2011 | 2012 | |
| £ million –––––––– |
£ million –––––––– |
£ million –––––––– |
£ million –––––––– |
|
| Turnover | 170.8 | 169.9 | 165.0 | 78.3 |
| Cost of sales | (124.6) –––––– |
(122.1) –––––– |
(117.7) –––––– |
(56.6) –––––– |
| Gross profit | 46.2 | 47.8 | 47.3 | 21.7 |
| Selling and distribution costs | (10.3) | (10.1) | (8.6) | (5.2) |
| Administrative expenses | (4.3) | (4.3) | (4.3) | (2.1) |
| Other operating expenses | (1.4) | (1.8) | (2.1) | (1.1) |
| Operating profit | –––––– 30.2 |
–––––– 31.6 |
–––––– 32.3 |
–––––– 13.3 |
| Profit on ordinary activities before taxation | 30.2 | 31.6 | 32.3 | 13.3 |
Notes:
The income statement information presented above is before the allocation of central Group and corporate costs because it is not possible to provide a meaningful allocation of these costs.
No interest or tax allocation is performed for the purpose of the Group consolidation. As a result it is not possible to provide a meaningful allocation of the Group interest and tax charges for these periods.
The income statement information presented above is unaudited.
| As at | |
|---|---|
| 30 June | |
| 2012 | |
| £ million | |
| Non-current assets | –––––––– |
| Property, plant and equipment | 29.4 |
| Other intangible assets | 29.4 |
| Current assets | |
| Inventories | 16.3 |
| Total assets and net assets | –––––– 75.1 –––––– |
The net assets of the Business above exclude goodwill of £85.9 million held and a deferred tax liability held centrally on consolidation of the Premier Foods Group. The goodwill arose on the acquisition of the RHM Group and Nestlé's UK ambient food business.
The net assets information presented above is unaudited.
Set out below is an unaudited pro forma statement of consolidated net assets of the Group as at 30 June 2012. It has been prepared on the basis set out in the notes below to illustrate the effect of the Disposal on the consolidated net assets of the Continuing Group had the Disposal occurred on 30 June 2012. It has been prepared for illustrative purposes only. Because of its nature, the pro forma statement addresses a hypothetical situation and, therefore, does not represent the Continuing Group's actual financial position or results. It is based on the unaudited interim consolidated financial information of Premier Foods as at 30 June 2012 and from the financial information of the Business as at 30 June 2012 contained in Part IV.
Shareholders should read the whole of this document and not rely solely on the summarised financial information contained in this Part V.
| As at 30 June 2012 £ million |
Business net assets adjustments as at 30 June 2012 £ million |
Business centrally held consolidation adjustments as at 30 June 2012 £ million |
Business Disposal adjustments £ million |
Pro forma as at 30 June 2012 £ million |
|
|---|---|---|---|---|---|
| –––––––– Note 1 |
–––––––– Note 2 |
–––––––– Note 3 |
–––––––– Note 4 |
–––––––– Note 5 |
|
| ASSETS: Non-current assets |
|||||
| Property, plant and equipment | 464.8 | (29.4) | – | – | 435.4 |
| Goodwill | 838.4 | – | (85.9) | – | 752.5 |
| Other intangible assets | 751.5 | (29.4) | – | – | 722.1 |
| Retirement benefits assets | 12.0 –––––– |
– –––––– |
– –––––– |
– –––––– |
12.0 –––––– |
| Total non-current assets Current assets |
2,066.7 | (58.8) | (85.9) | – | 1,922.0 |
| Assets held for sale (Note 6) | 34.9 | – | – | – | 34.9 |
| Inventories | 149.1 | (16.3) | – | – | 132.8 |
| Trade and other receivables Financial assets |
274.2 | – | – | – | 274.2 |
| – derivative financial instruments | 0.3 | – | – | – | 0.3 |
| – Consideration Shares held for sale | – | – | – | 30.0 | 30.0 |
| Cash and cash equivalents | 48.7 –––––– |
– –––––– |
– –––––– |
– –––––– |
48.7 –––––– |
| Total current assets | 507.2 –––––– |
(16.3) –––––– |
– –––––– |
30.0 –––––– |
520.9 –––––– |
| Total assets | 2,573.9 –––––– |
(75.1) –––––– |
(85.9) –––––– |
30.0 –––––– |
2,442.9 –––––– |
| Business | |||||
|---|---|---|---|---|---|
| Business net | centrally held | ||||
| assets | consolidation | ||||
| adjustments | adjustments | Pro forma | |||
| As at | as at | as at | Business | as at | |
| 30 June | 30 June | 30 June | Disposal | 30 June | |
| 2012 | 2012 | 2012 | adjustments | 2012 | |
| £ million –––––––– |
£ million –––––––– |
£ million –––––––– |
£ million –––––––– |
£ million –––––––– |
|
| Note 1 | Note 2 | Note 3 | Note 4 | Note 5 | |
| LIABILITIES: | |||||
| Current liabilities | |||||
| Trade and other payables | (351.7) | – | – | – | (351.7) |
| Financial liabilities | |||||
| – short term borrowings | (185.1) | – | – | – | (185.1) |
| – derivative financial instruments (19.5) | – | – | – | (19.5) | |
| Accrued interest payable | (0.9) | – | – | – | (0.9) |
| Provisions | (12.8) | – | – | – | (12.8) |
| Current income tax liabilities | (0.8) | – | – | – | (0.8) |
| Liabilities held for sale (Note 6) | (2.4) –––––– |
– –––––– |
– –––––– |
– –––––– |
(2.4) –––––– |
| Total current liabilities | (573.2) | – | – | – | (573.2) |
| Non-current liabilities | |||||
| Financial liabilities | |||||
| – long term borrowings | (1,133.0) | – | – | 164.9 | (968.1) |
| Retirement benefit obligations | (284.6) | – | – | 2.0 | (282.6) |
| Provisions | (53.6) | – | – | – | (53.6) |
| Other liabilities | (26.6) | – | – | – | (26.6) |
| Deferred tax liabilities | (2.8) –––––– |
– –––––– |
4.0 –––––– |
– –––––– |
1.2 –––––– |
| Total non-current liabilities | (1,500.6) –––––– |
– –––––– |
4.0 –––––– |
166.9 –––––– |
(1,329.7) –––––– |
| Total liabilities | (2,073.8) | – | 4.0 | 166.9 | (1,902.9) |
| Net assets | –––––– 500.1 |
–––––– (75.1) |
–––––– (81.9) |
–––––– 196.9 |
–––––– 540.0 |
| –––––– | –––––– | –––––– | –––––– | –––––– |
Notes:
The net assets relating to Premier Foods have been extracted without material adjustment from the unaudited financial information of the Group as at 30 June 2012, and prepared under IFRS.
These adjustments remove the assets of the Business which will be disposed of. These adjustments were extracted without material adjustment from the historical financial information of the Business as at 30 June 2012 contained in Part IV.
At 30 June 2012, the assets of the Business were as follows:
| As at | |
|---|---|
| 30 June | |
| 2012 | |
| £ million | |
| Non-current assets | –––––– |
| Property, plant and equipment | 29.4 |
| Other intangible assets | 29.4 |
| Current assets | |
| Inventories | 16.3 |
| Total assets | –––––– 75.1 |
| –––––– |
These adjustments write off the goodwill of £85.9 million held on consolidation at the Group level as a result of the Disposal together with a deferred tax liability of £4.0 million. This goodwill arose on the acquisition of the RHM Group and Nestlé's UK Ambient Food business by the Group, and therefore is not directly held by, or to be sold with, the Business. The adjustment was extracted without material adjustment from the historical financial information of the Group as at 30 June 2012.
Disposal adjustments comprise the receipt of cash proceeds of £170 million and the receipt of Consideration Shares worth at least £30 million at Closing less estimated transaction and related costs of £4.4 million less an amount of £0.7 million in respect of the value of the inventory adjustment which would have arisen had the Disposal occurred on 30 June 2012 (based on a target inventory value of £17 million relative to the inventory value at 30 June 2012 of £16.3 million). The actual value of the inventory adjustments will be calculated on the basis of the inventory value at the completion date.
The Consideration Shares have been classified as a financial asset held for sale and will be received on the third Trading Day after Closing.
On 21 September 2012, Premier Foods Group Limited entered into the Collar Option. The options under the Collar Option will close out and be cash settled automatically over a certain period following Closing. The number of options exercisable correlate to the number of Consideration Shares.
It is anticipated that the Consideration Shares will be monetised at times that correlate with the options closing out. The combined effect of the Collar Option and the disposal of the Consideration Shares is that the Seller is effectively guaranteed a minimum price per Consideration Share if the Hain share price is lower than the floor price of the Collar Option. Alternatively, if the Hain Share price increases significantly, there is also a cap which limits the amount per Consideration Share that the Seller will receive.
The proceeds raised from the monetisation of the Consideration Shares will be used to reduce net debt.
On 23 August 2012, the minimum number of Consideration Shares was set at 836,426 shares at a price of \$56.91 (the closing price on 22 August 2012), converted at an exchange rate of £1:\$1.5867 at the same date, equating to £30.0 million. For illustrative purposes, the value of £30.0 million has been assumed in Notes 5 and 7 below. The actual value of the shares used to repay the borrowings of the Group will be based on the share price and the exchange rate at the date of monetisation of the shares and the floor and cap set for the Collar Option.
Under the terms of the Disposal Agreement, Premier Foods Group Limited has the option to require the Purchaser to pay £19 million in cash to the Seller on Closing in lieu of the issue of the Consideration Shares. This option may be exercised wholly at the Seller's discretion at any time between 4.00 p.m. New York time on the Trading Day before Closing and the time of Closing.
In addition, an estimated pension curtailment gain of £2.0 million arises as a result of employees of the Business ceasing to be active members of the Group's pension schemes on disposal.
| £ million –––––– |
£ million –––––– |
|
|---|---|---|
| Group net debt as at 30 June 2012 | 1,269.4 | |
| Gross cash proceeds | (170.0) | |
| Normalised working capital adjustment to proceeds | 0.7 | |
| Estimated transaction costs | 4.4 –––––– |
|
| Net proceeds | (164.9) | |
| Group pro forma net debt as at 30 June 2012 | –––––– 1,104.5 |
|
| Assumed proceeds from the sale of the Consideration Shares (Note 4) | –––––– (30.0) |
|
| Group pro forma net debt as at 30 June 2012 (after disposal of the Business and monetisation of Consideration Shares) |
–––––– 1,074.5 –––––– |
| Assets held for sale | £ million –––––– |
|---|---|
| Property, plant and equipment | 6.6 |
| Inventories | 5.5 |
| Goodwill (held on consolidation) | 17.8 |
| Other intangible assets | 5.0 |
| Total | –––––– 34.9 –––––– |
| Liabilities held for sale | £ million –––––– |
| Provision for deferred tax | (2.4) –––––– |
| £ million –––––– |
£ million –––––– |
|
|---|---|---|
| Group pro forma net debt as at 30 June 2012 (after disposal | ||
| of the Business and monetisation of Consideration Shares) (Note 5) | 1,074.5 | |
| Gross proceeds from disposal of vinegars and sour pickles business | (41.0) | |
| Gross proceeds from disposal of Elephant Atta ethnic flour business | (33.8) | |
| Estimated transaction costs | 2.1 | |
| Net proceeds | –––––– | (72.7) –––––– |
| Group pro forma net debt as at 30 June 2012 | 1,001.8 –––––– |
|
The Directors Premier Foods plc Centrium Business Park Griffiths Way St Albans AL1 2RE
Credit Suisse Securities (Europe) Limited One Cabot Square London E14 4QJ
28 September 2012
Dear Sirs
We report on the unaudited pro forma statement of net assets (the "Pro forma financial information") set out in Section A of Part V of the Company's circular dated 28 September 2012 (the "Circular") which has been prepared on the basis described in the notes to the Pro forma financial information, for illustrative purposes only, to provide information about how the proposed disposal of the Sweet Spreads and Jellies business might have affected the financial information presented on the basis of the accounting policies adopted by the Company in preparing the unaudited interim financial information for the six month period ended 30 June 2012. This report is required by item 13.3.3R of the Listing Rules of the UK Listing Authority (the "Listing Rules") and is given for the purpose of complying with that item and for no other purpose.
It is the responsibility of the directors of the Company to prepare the Pro forma financial information in accordance with item 13.3.3R of the Listing Rules.
It is our responsibility to form an opinion, as required by item 13.3.3R of the Listing Rules as to the proper compilation of the Pro forma financial information and to report our opinion to you.
In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro forma financial information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue.
Save for any responsibility which we may have to those persons to whom this report is expressly addressed and which we may have to shareholders of the Company as a result of the inclusion of this report in the Circular, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such person as a result of, arising out of, or in
PricewaterhouseCoopers LLP, 1 Embankment Place, London WC2N 6RH T: +44 (0) 20 7583 5000, F: +44 (0) 20 7822 4652, www.pwc.co.uk
PricewaterhouseCoopers LLP is a limited liability partnership registered in England with registered number OC303525. The registered office of PricewaterhouseCoopers LLP is 1 Embankment Place, London WC2N 6RH. PricewaterhouseCoopers LLP is authorised and regulated by the Financial Services Authority for designated investment business.
accordance with this report or our statement, required by and given solely for the purposes of complying with item 13.4.1R(6) of the Listing Rules, consenting to its inclusion in the Circular.
We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro forma financial information with the directors of the Company.
We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro forma financial information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of the Company.
In our opinion:
Yours faithfully
PricewaterhouseCoopers LLP Chartered Accountants
The Directors of Premier Foods, whose names appear in Section 3.1 of this Part Vl (Additional Information), accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.
The Company was incorporated and registered in England and Wales as a public limited company on 22 June 2004 under the Companies Act 1985 with number 05160050. The legal and commercial name of the Company is Premier Foods plc. The Company's registered office and principal place of business is at Premier House, Centrium Business Park, Griffiths Way, St Albans, Hertfordshire AL1 2RE. The telephone number of the Company's registered office is +44 (0) 1727 815 850.
The principal legislation under which Premier Foods operates are the Companies Acts and the regulations made thereunder.
Other than as set out below, there are no existing or proposed service contracts between any Director and any member of the Group except for the contracts and letters of appointment, details of which were included in the published annual accounts of the Group for the year ended 31 December 2011 and a summary of which is provided below.
Michael Clarke, the Chief Executive Officer, has a service agreement which commenced on 16 August 2011; Mark Moran, the Chief Financial Officer, has a service agreement which commenced on 8 December 2011. The service agreements continue until terminated on 12 months' notice by either party. In the event of early termination (other than for a reason justifying summary termination in accordance with the terms of the service agreement), the Company may (but is not obliged to) pay the relevant executive Director, in lieu of notice, a sum equal to the annual value of the relevant executive Director's then salary, benefits and pension contributions which he would have received during the contractual notice period.
The Non-executive Directors have individual letters of appointment.
David Beever was appointed as a Non-executive Director for an initial three year period with effect from 21 January 2008 and was extended with effect from 20 January 2011 for a further 3 years. He was appointed Chairman on 1 June 2012.
Charles Miller Smith, who was appointed as a Non-executive Director from 16 June 2009 pursuant to a Relationship Agreement with Warburg Pincus (as set out in Section 6 of Part VI), was appointed Non-executive Deputy Chairman with effect from 1 October 2010 for an initial 12 month period. This was then extended for a further 12 month period on 1 October 2011.
Ian McHoul's appointment as a Non-executive Director was extended with effect from 19 July 2010 for a further three years. Louise Makin's appointment as a Non-executive Director was extended with effect from 1 October 2009 for a further three years, and she has advised the Board that she will step down as a director following the end of this period on 30 September 2012. David Wild was appointed as a Non-executive Director with effect from 7 March 2011 until the Company's AGM in 2014.
On 15 August 2012 the Company announced the appointment of Jennifer Laing as a Non-executive Director with effect from 1 October 2012.
All Non-executive Director letters of appointment are terminable on 3 months' notice by either party (with the exception of Charles Miller Smith as referred to above). There are no provisions for compensation being payable upon early termination of an appointment of a Non-executive Director.
As at 27 September 2012 (being the latest practicable date prior to the publication of this document), the interests of each Director, their immediate families and related trusts and, insofar as is known to them or could with reasonable diligence be ascertained by them, persons connected (within the meaning of Section 252 to 255 of the Companies Act 2006) with the Director (all of which, unless otherwise stated, are beneficial) in the share capital of the Company, including interests arising pursuant to any transaction notified to the Company pursuant to rule 3.1.2 of the Disclosure Rules, are as follows:
| No. of | ||||
|---|---|---|---|---|
| Number of | Percentage of issued |
shares under Long-Term |
No. of shares under |
|
| Ordinary | Ordinary | Incentive | Recruitment | |
| Name of Director | Shares | Shares | Awards | Awards |
| David Beever | 31,900 | 0.013 | — | — |
| Charles Miller Smith* | — | — | — | — |
| Michael Clarke | 374,078 | 0.156 | 1,304,347 | 875,000 |
| Mark Moran | 1,754,000 | 0.731 | 554,347 | — |
| Ian McHoul | 10,000 | 0.004 | — | — |
| Louise Makin | 5,863 | 0.002 | — | — |
| David Wild | 5,000 | 0.002 | ||
| Total | 2,148,941 | 0.896 | 1,858,694 | 875,000 |
*In March 2012 Mr Miller Smith entered into contracts for difference over 268,027 shares at prices of 112.5p – 115.2p per share.
There are no individuals deemed by the Company to be key to the operations of the Business.
5.1 Set out in the table below are the names of those persons, other than the Directors, who, so far as the Company is aware, are interested, directly or indirectly, in three per cent. or more of the Company's total voting rights and capital in issue as at 27 September 2012 (being the latest practicable date prior to the publication of this document). The Company has received no notifications of any changes to this information since this date.
| Percentage | ||
|---|---|---|
| Number of | of issued | |
| Ordinary | Ordinary | |
| Name | Shares | Shares |
| Warburg Pincus LLC | 41,573,972 | 17.34 |
| Paulson & Co. Inc. | 26,292,742 | 10.96 |
| Templeton Investment Counsel, LLC | 16,140,175 | 6.73 |
| Standard Life Investments Ltd | 14,241,449 | 5.94 |
| TD Waterhouse (Europe) Ltd | 8,283,957 | 3.45 |
| Dimensional Fund Advisors LP | 8,067,836 | 3.36 |
| Legal & General Group Plc | 7,902,381 | 3.30 |
| Barclays PLC | 7,725,654 | 3.22 |
5.2 The Company is not aware of any person who exercises, or could exercise, directly or indirectly, jointly or severally, control over the Company.
During the three years ended 31 December 2011 and the current financial year to date, the Group has entered into the following related party transaction. A related party transaction for these purposes is one set out in the standards adopted according to Regulation (EC) No. 1606/2002.
Warburg Pincus is considered to be a related party of the Group by virtue of its 17.34 per cent. equity shareholding in Premier Foods and its power to appoint a member to the Board under the terms of a relationship agreement between Warburg Pincus and the Company dated 5 March 2009 (the "Relationship Agreement").
Under the Relationship Agreement, Warburg Pincus, with the agreement of the Company, may appoint a Director so long as Warburg Pincus retains a minimum interest of 23,980,215 shares in the Company. Pursuant to the Relationship Agreement, Charles Miller Smith was appointed as a non-executive director of the Company in June 2009 and as Deputy Chairman of Premier Foods with effect from October 2010. The Relationship Agreement also governs the retention by Warburg Pincus of its shareholding in Premier Foods and its purchase of further shares in the Company.
No contracts have been entered into (other than contracts entered into in the ordinary course of business) by any member of the Continuing Group either: (i) within the period of two years immediately preceding the date of this document, which are or may be material to the Continuing Group; or (ii) at any time, which contain any provisions under which any member of the Continuing Group (as relevant) has any obligation or entitlement which is, or may be, material to the Continuing Group (as relevant) as at the date of this document, save as disclosed below:
PFGL entered into an agreement with ABF Grain Products Limited (trading as Westmill Foods) for the sale of the business of the sale of products under the Elephant Atta, Elephant Chakki Gold and Fassal brands on 5 July 2012 (the "Ethnic Flour Agreement"). The transaction signed and closed on 5 July 2012. The cash consideration payable in connection with the disposal was £34 million.
PFGL gave customary warranties in the Ethnic Flour Agreement and its liability under the Ethnic Flour Agreement was capped at the total cash consideration payable by the purchaser. No amounts are recoverable by the purchaser until the aggregate warranty claims exceed £375,000 and only individual claims in excess of £100,000 are able to be made. Claims must generally be notified to PFGL within 19 months of 5 July 2012, and legal proceedings commenced within 6 months of the service of any such notice.
PFGL agreed to non-compete undertakings for a period of 3 years from 5 July 2012, and to nonsolicitation undertakings for a period of 12 months from 5 July 2012. As part of the disposal certain transitional arrangements were entered into between PFGL and the purchaser.
PFGL entered into an agreement with Nakano UK Vinegar Limited and Nakano UK Holding Limited for the sale of the vinegar and sour pickles businesses belonging to PFGL on 14 June 2012 (the "Vinegar and Sour Pickles Agreement"). The transaction closed on 28 July 2012. The consideration payable under the Vinegar and Sour Pickles Agreement was £41 million, subject to adjustments pursuant to stock counts.
PFGL gave customary warranties in the Vinegar and Sour Pickles Agreement and its warranty liability was capped at half of the purchase price. No amounts are recoverable by the purchaser until the aggregate warranty claims exceed £500,000 and only individual claims in excess of £100,000 are able to be made. Claims must generally be brought within 12 months of the closing of the transaction, or 4 years for claims relating to tax warranties.
PFGL agreed to non-compete and non-solicit undertakings for a period of two years following the closing of the transaction. As part of the disposal, certain transitional arrangements were entered into between PFGL and the purchaser.
PFGL and a number of other Group companies (the "Irish Brands Sellers") entered into an agreement with the Boyne Valley Group for the sale of four Irish brands comprising Chivers, Gateaux, McDonnells and the Erin licence on 15 December 2011 (the "Irish Brands Agreement") pursuant to which the Irish Brands Sellers disposed of their business of manufacturing, marketing, selling and/or distributing of the Irish Brands to the Boyne Valley Group. The transaction closed on 23 January 2012. The total consideration payable under the Irish Brands Agreement was €41.4 million subject to a stock adjustment.
The Irish Brands Sellers gave customary warranties in the Irish Brands Agreement and their warranty liability was capped at the total consideration (as amended by the stock adjustment). Generally, no amounts are recoverable by the purchaser until the aggregate warranty claims exceed €600,000 and generally only individual claims in excess of €75,000 are able to be made. Claims (other than in relation to tax) must generally be brought within 18 months of the closing of the transaction.
PFGL agreed to non-compete and non-solicitation undertakings for a period of 2 years following the closing of the transaction. As part of the disposal, certain transitional and co-packing arrangements were entered into between PFGL and other Group companies and the purchaser.
PFGL entered into a business purchase agreement with 2 Sisters Food Group on 8 December 2011 (the "RF Brookes and Avana Agreement") pursuant to which PFGL agreed to dispose of its business of manufacturing, marketing, selling and distribution relating to all products sold by the RF Brookes and Avana division. The transaction closed on 31 December 2011. The total consideration payable under the RF Brookes and Avana Agreement was £30 million, subject to a working capital adjustment.
PFGL gave customary warranties in the RF Brookes and Avana Agreement and its warranty liability was capped at the purchase price. Generally, no amounts are recoverable by the purchaser until the aggregate warranty claims exceed £300,000 and generally only individual claims in excess of £30,000 are able to be made. Claims must generally be brought within 15 months of the closing of the transaction.
PFGL agreed to non-compete and non-solicit undertakings for a period of 18 months following the closing of the transaction. As part of the disposal, certain transitional arrangements were entered into between PFGL and the purchaser.
PFGL entered into an agreement with Princes Limited for the sale of its East Anglian canned grocery operations on 8 February 2011 (the "Canned Grocery Agreement") pursuant to which PFGL disposed of its business of manufacturing, marketing, selling and/or distributing of vegetables, fruit, beans, soup, meat and past in cans or pouches to Princes Limited. The transaction closed on 25 July 2011. The total consideration of payable under the Canned Grocery Agreement was £182.2 million subject to a reduction of £4.6 million to take into account debtors and creditors retained by PFGL and a further adjustment for stock levels.
PFGL gave customary warranties in the Canned Grocery Agreement and its warranty liability was capped at the purchase price. Generally, no amounts are recoverable by the purchaser until the aggregate warranty claims exceed £1.5 million and generally only individual claims in excess of £150,000 are able to be made. Claims must generally be brought within 18 months of the closing of the transaction.
PFGL agreed to non-compete and non-solicit undertakings for a period of two years following the closing of the transaction. As part of the disposal, certain transitional arrangements were entered into between PFGL and the purchaser.
PFGL entered into an agreement with Marlow Foods Holdings Limited and Exponent (Montreal) SPV 5 Limited for the sale of the entire issued share capital of Marlow Foods Limited on 24 January 2011 (the "Meat-free Agreement") pursuant to which PFGL disposed of its business of manufacturing and selling meat-free products to and Exponent (Montreal) SPV 5 Limited. The transaction closed on 7 March 2011. The total consideration payable under the Meat-free Agreement was £205 million, subject to a working capital adjustment.
PFGL gave customary warranties in the Meat-free Agreement and its warranty liability was capped at the purchase price. No amounts are recoverable by the purchaser until the aggregate warranty claims exceed £2 million and only individual claims in excess of £150,000 are able to be made. Claims must generally be brought within 18 months of the closing of the transaction.
PFGL agreed to non-compete and non-solicit undertakings for a period of two years following the closing of the transaction. As part of the disposal, certain transitional arrangements were entered into between PFGL and the purchaser.
A summary of the principal terms of the Relationship Agreement between the Company and Warburg Pincus is set out in Section 6 of this Part VI.
A summary of the principal terms of the Transaction Documents is set out in Part III (Principal Terms of the Disposal).
On 21 September 2012, PFGL entered into a zero premium, cash-settled, collar option with a hedge counterparty in relation to the Hain shares (the "Collar Option"). The intention of the Collar Option is to: (i) protect appreciation in value of the Hain shares following the signing of the Disposal Agreement; and (ii) protect the Seller from falls in the Hain share price post-Closing.
Under the terms of the Collar Option:
(i) a floor and cap for the Collar Option are set by reference to the average of the Hain share price and foreign exchange rate of US\$ to GBP during a certain period after entry into the Collar Option;
Assuming that the Consideration Shares are monetised at times that correlate with the options closing out, and that the setting of the floor and cap is in line with expectations, the effect of the Collar Option, in conjunction with the expected disposal of the Consideration Shares, is that:
The options are valued on a mark-to-market basis each day. If the mark-to-market which would be due from the Seller is over £5 million, collateral must be posted daily up to a limit of £10 million.
The close out of the options is independent from the receipt or disposal of the Consideration Shares by the Seller.
A £2.1 billion term and revolving credit facilities agreement was entered into on 3 December 2006 between, amongst others, the Company, PFIL (as Obligors' Agent), certain subsidiaries of the Company as borrowers and guarantors, certain financial institutions as lenders and Lloyds TSB Bank plc as facility agent and security trustee (the "Bank Facilities Agreement"). The Bank Facilities Agreement was amended by a supplemental agreement dated 5 December 2006, amended and restated by supplemental agreements dated 22 December 2006, 16 March 2007, 29 June 2007, 28 February 2008, 5 March 2009 and 23 December 2009, amended by a supplemental agreement dated 11 October 2010 and amended and restated by a supplemental agreement dated 30 March 2012.
The Bank Facilities Agreement was put in place to fund the acquisition of RHM Limited and its subsidiaries, refinance the Group's previous bank facilities and provide the Group with working capital.
The facilities under the Bank Facilities Agreement comprise (i) a term loan facility in an aggregate amount equal to approximately £919.4 million as at 30 March 2012 (which includes the interest rate swap portfolio as at 30 March 2012 which was restructured into an additional term loan in order to reduce the Group's exposure) of which £733 million is outstanding (the "Term Loan Facility"); and (ii) a multicurrency revolving credit facility in an aggregate amount equal to £500 million (the "Revolving Credit Facility", and together with the Term Loan Facility, the "Facilities"). In March 2012, the Group announced that it had obtained consent from its banking syndicate, swap counterparties and pension schemes on a refinancing package under which, amongst other things, the Term Loan Facility and Revolving Credit Facility would be extended to a new maturity date of 30 June 2016. The amortisation payment schedule of the Term Loan Facility was amended, with amortisations to occur semi-annually from 30 June 2014. Banking covenants of net debt/EBITDA and EBITDA/interest remain in place; they will continue to be tested biannually and have been re-set to reflect the Group's strategic plan. In addition, the trustees of the Group's pension schemes also agreed to defer deficit contribution payments (of c.£47 million per annum) until 1 January 2014 and there will be no increase in the agreed deficit contributions before 2016.
The borrowers to which loans are made under the Facilities agree to pay interest at a percentage rate per annum equal to an aggregate of LIBOR, a margin and the mandatory cost rate, if any. The margin remains at 2.25 per cent. until 31 December 2013, and then increases to 3.25 per cent. for the remainder of the term. PFIL has also entered into an amortising swap agreement with a nominal value of £745 million for the purpose of reducing the interest-rate exposure in respect of loans made under the Term Loan Facility.
The Bank Facilities Agreement provides for payment by the borrowers of certain fees in connection with the Facilities, including a commitment fee in respect of the Revolving Credit Facility.
The Bank Facilities Agreement contains certain mandatory prepayment events, including illegality, change of control of the Company, disposals and debt/equity issues. The group is also required to realise proceeds (and prepay such proceeds) from certain planned disposals (with the ability to substitute other disposals for planned disposals (with 662/3 per cent. majority lender consent) and/or equity issuance proceeds) equal to the Aggregate Proceeds by 30 June 2014. The Bank Facilities Agreement further stipulates that £264 million of the Aggregate Proceeds is required to be realised by 31 December 2013 and that £300 million of the Aggregate Proceeds is required to be realised by 31 March 2014.
The Obligors' Agent has the right to cancel the whole or any part of the aggregate outstanding commitments under the Facilities and a borrower is permitted to voluntarily prepay any outstanding loans.
The Bank Facilities Agreement contains covenants by, and restrictions on, the Company, the borrowers and the guarantors (including restrictions on acquisitions and disposals and the incurrence of further debt), as well as customary events of default, upon the occurrence of which the lenders may terminate the facilities and demand repayment.
The Facilities are guaranteed by certain material subsidiaries of the Company. Under the Bank Facilities Agreement, the Company is required to ensure that the guarantor group covers more than 85 per cent. of the consolidated EBITDA, gross tangible consolidated assets and consolidated turnover of the Group (respectively) and that each material subsidiary of the Company (whose EBITDA, assets or turnover exceeds five per cent. of the Group's) is a guarantor.
The Facilities under the Bank Facilities Agreement are also secured in favour of the lenders, who benefit from first ranking fixed charges granted to the security agent (for the benefit of the lenders) over certain real estate and intellectual property rights, floating charges over all of the assets of each of the material subsidiaries of the Company and share charges over the shares of the material subsidiaries of the Company. Any action which may be taken in relation to the above mentioned security is regulated by the Intercreditor Agreement (as summarised immediately below).
An intercreditor agreement was entered into on 16 March 2007 between, amongst others, the Company, certain subsidiaries of the Company as borrowers and guarantors under the Bank Facilities Agreement, certain financial institutions as lenders under the Bank Facilities Agreement, the trustees of the RHM Pension Scheme, the Premier Foods Pension Scheme and the Premier Grocery Products Pension Scheme (the "Pension Trustees"), and Lloyds TSB Bank plc as facility agent and security agent for the Secured Parties (the "Intercreditor Agreement"). The Intercreditor Agreement was amended and restated by supplemental agreements dated 5 March 2009 and 30 March 2012.
The Secured Parties under the Intercreditor Agreement refers to the lenders under the Bank Facilities Agreement, counterparties to those swap agreements that share in the security (up to a maximum of £35 million adjusted from 1 January 2013 to reflect the actual mark-to-market exposure) and the providers of ancillary facilities. The Secured Parties and the Pension Trustees together constitute the Expanded Secured Parties.
The Intercreditor Agreement provides that the debt of the Secured Parties and the liabilities of the relevant Group members under the RHM Pension Scheme, the Premier Foods Pension Scheme and the Premier Grocery Products Pension Scheme rank, and are secured, equally and rateably in all respects provided that the Pension Trustees may only claim from the security up to specified maximum amounts.
The Intercreditor Agreement sets out restrictions on enforcement of security and the order in which any proceeds of enforcements must be applied. The proceeds of enforcement must be applied (i) first, towards payment of fees, costs and expenses of the security agent; (ii) second, towards payment of fees, costs and expenses of the Expanded Secured Parties; and (iii) third, pari passu towards payment of the Secured Parties debt and liabilities under the RHM Pension Scheme, the Premier Foods Pension Scheme and the Premier Grocery Products Pension Scheme.
The Intercreditor Agreement also contains provisions for the release of security in certain situations, including where an obligor under the Bank Facilities Agreement ceases to be a member of the Group or secured assets are disposed in accordance with the Bank Facilities Agreement.
A receivables securitisation agreement was entered into on 30 March 2012 between, among others, PFGL as originator, Premier Foods Collections Limited (a special purpose vehicle) ("PFCL") as discount note issuer and certain bank conduits as discount note purchasers (the "Receivables Securitisation Agreement"). A definitions schedule and other ancillary documents were also entered into by PFGL on the same day.
Under the terms of the Receivables Securitisation Agreement, receivables are held by PFGL on bare trust for PFCL. PFCL provides funding to PFGL for the receivables by issuing discount notes to the discount note purchasers. There is currently a funding limit of £120 million which may be reduced at the request of PFGL (subject to a minimum commitment of £40 million).
A commitment fee is payable to the discount note purchasers on each weekly settlement date.
There are covenants in the Receivables Securitisation Agreement common to facilities of this type in relation to PFGL, PFCL and the receivables.
The Receivables Purchasing Agreement also contains provisions allowing the lenders to terminate the programme on the occurrence of certain termination events set out therein. One of these termination events is a breach of any of the financial covenants (which are the same as those in the Bank Facilities Agreement as at the date of the 30 March 2012 supplemental agreement). The Receivables Securitisation Agreement also contains cross-default provisions for financial indebtedness in excess of £5 million of PFGL or another member of the group.
The borrowers under the Bank Facilities Agreement borrow in pounds sterling at floating rates of interest. In order to mitigate the effect of movements in interest rates, PFIL has entered into an amortising £745 million interest rate swap designed to reduce the Group's level of exposure to floating rates. Pursuant to the terms of the Bank Facilities Agreement, hedging transactions relating to the interest rate liabilities in respect of the loans must not exceed 85 per cent. of the total commitments under the Bank Facilities Agreement nor mature after 30 June 2016. Any hedge counterparties under these swap agreements which accede to the Bank Facilities Agreement and the Intercreditor Agreement share in the same security package granted to lenders and the Pension Trustees.
The Combined Premier Pension Schemes Framework Agreement (the "Framework Agreement") was originally entered into on 5 March 2009 by Premier Foods and the trustees (the "Trustees") of four pension schemes: the Premier Foods Pension Scheme ("PFPS"), the RHM Pension Scheme ("RHMPS"), the Premier Grocery Products Pension Scheme and the Premier Ambient Products Pension Scheme (the "Pension Schemes").
The intention of the Framework Agreement was to provide greater certainty over future cash flows, and, in particular, those which may arise from any future increases in the funding deficit. The original Framework Agreement has subsequently been amended and as such it now records the agreement between Premier and the Trustees in relation to the treatment of funding principles and deficit repayments in respect of "Future Valuations" (a phrase used to cover Pension Scheme valuations: (i) with an effective date of 2010 (the "2010 Valuations"); (ii) with an effective date of 2013 (the "2013 Valuations"); and (iii) any other Pension Scheme valuation with an effective date before March 2016 in respect of the Premier Grocery Products Pension Scheme and April 2016 in the case of the PFPS and the RHMPS).
More particularly, the Framework Agreement states that:
(D) the parties agree to co-operate and work in good faith in relation to determining the investment strategies for the Pension Schemes (although Premier Food's consent is not required in relation to the investment strategies).
PFGL (the "Cadbury Licensee") and Cadbury UK Limited (the "Cadbury Licensor") entered into the Cadbury trade mark licence (the "Cadbury Licence") on 29 January 2010. The Cadbury Licence had been extended on 25 October 2010 and, subject to its terms, will run for a period to expire not earlier than 30 June 2013.
The Cadbury Licence is an exclusive licence which covers specified territories including the United Kingdom and Ireland. It grants the right to use the Cadbury, Cadbury Ellipse, Cadbury Mini Rolls and Flake trade marks, as well as other relevant brands, on a variety of ambient cake and baking mix products. At the time the Cadbury Licence was entered into, such products included, amongst others, Cadbury Mini Rolls, Events, Cakes Bars and Celebration. The Cadbury Licensee may propose any new products which contain Cadbury approved ingredients and which fall into the categories of ambient cakes (including celebration cakes, muffins, brownies and millionaire's shortbread but excluding Jaffa Cake products), flapjacks, ambient cake and pudding mixes, ambient hot and cold eating desserts and mini versions thereof be added to the Cadbury Licence.
The Cadbury Licence contains standard termination provisions including if the Cadbury Licensee undergoes a change a control to a chocolate confectionary manufacturer with a market share greater than three per cent. of the chocolate confectionary market in the United Kingdom and Ireland.
The Loyd Grossman trade mark licence (the "Loyd Grossman Licence") was entered into on 10 October 2006 between Loyd Grossman and Chivers Hartley Limited (assigned to PFGL in 2009 as part of an internal corporate reorganisation) and has a term of 20 years expiring on 10 October 2026.
The Loyd Grossman Licence is an exclusive worldwide licence which covers the UK trade mark Loyd Grossman and the trade name Loyd Grossman. The products included are sauces, dressing, accompaniments and toppings for pasta, rice, noodles, marinades, oils, salad dressings, soups and pizza. The Loyd Grossman Licence also covers secondary products such as prepared, dried, canned, cooked, frozen fruit and vegetables, pickles, chutney, relishes, condiments, spices, flavourings, salad cream and mayonnaise, prepared meals and snacks, mashed potato and potato based products, spreads, honey, marmalade, jams, conserves and preserves, jelly, mincemeat, tea, hot beverages and milk.
The Loyd Grossman Licence contains standard termination provisions.
No contracts have been entered into (other than contracts entered into in the ordinary course of business) by or on behalf of the Business: (i) within the period of two years immediately preceding the date of this document, which are or may be material to the Business; or (ii) at any time, which contain any provisions under which any member of the Business (as relevant) has any obligation or entitlement which is, or may be, material to the Business (as relevant) as at the date of this document.
There are no, nor have there been any, governmental, legal or arbitration proceedings (nor is the Company aware of any such proceedings being pending or threatened) which during the last twelve months prior to the date of this document may have, or in the recent past have had, a significant effect on the Continuing Group's financial position or profitability.
There are no, nor have there been any, governmental, legal or arbitration proceedings (nor is the Company aware of any such proceedings being pending or threatened) which during the last twelve months prior to the date of this document may have, or in the recent past have had, a significant effect on the Business's financial position or profitability.
The Company is of the opinion that, taking into account the facilities available to the Continuing Group, the working capital available to the Continuing Group is sufficient for its present requirements, that is, for at least the twelve months following the date of publication of this document.
There has been no significant change in the financial or trading position of the Continuing Group since 30 June 2012, being the date to which the Group's latest published unaudited interim financial information has been drawn up.
There has been no significant change in the financial or trading position of the Business since 30 June 2012, being the date to which the most recent financial information on the Business, presented in Part IV (Financial Information on the Business) of this document, has been prepared.
Copies of the following documents will be available for inspection at the offices of the Company at Premier House, Centrium Business Park, Griffiths Way, St Albans, Hertfordshire AL1 2RE and at the offices of Slaughter and May at One Bunhill Row, London, EC1Y 8YY during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) up to and including the date of the General Meeting:
12.6 this document and the Form of Proxy;
12.7 the Disposal Agreement; and
The table below provides the historical closing share prices of Hain on the last Trading Day of each month for the 12 months prior to the date of this document. Please note that past performance of securities is no guide to their future performance and the information prepared is historical and not forward looking.
| Middle market | |
|---|---|
| Trading date | share price (\$US) |
| 30 September 2011 | 30.55 |
| 31 October 2011 | 33.56 |
| 30 November 2011 | 37.34 |
| 30 December 2011 | 36.66 |
| 30 January 2012 | 38.54 |
| 28 February 2012 | 40.11 |
| 30 March 2012 | 43.81 |
| 30 April 2012 | 47.30 |
| 31 May 2012 | 55.49 |
| 29 June 2012 | 55.04 |
| 31 July 2012 | 55.69 |
| 31 August 2012 | 68.99 |
The following terms have the following meanings throughout this document unless the context otherwise requires:
| "Articles of Association" | the articles of association of the Company; |
|---|---|
| "Board" or "Directors" | the board of directors of the Company; |
| "Business" | the business of the manufacture and sale of sweet spreads and jellies based at Histon, Cambridgeshire; |
| "Business Consideration Debt" | the £190 million of consideration for the sale of the Business to HSSL which will be left outstanding pursuant to the Hive Down Agreement and then acquired by the Purchaser pursuant to the Disposal Agreement; |
| "Closing" | the completion of the sale of the entire issued share capital of HSSL to the Purchaser in accordance with the terms of the Disposal Agreement; |
| "Companies Acts" | has the meaning given in Section 2 of the Companies Act 2006; |
| "Consideration Shares" | the shares of Hain Stock to be issued to the Seller pursuant to the Disposal Agreement as described in Part III (Principal Terms of the Disposal); |
| "Continuing Group" | Premier Foods and its subsidiaries and subsidiary undertakings, excluding HSSL and the Business; |
| "Credit Suisse" | Credit Suisse Securities (Europe) Limited; |
| "CREST" | the system of paperless settlement of trades in securities and the holding of uncertificated securities operated by CRESTCo Limited in accordance with Uncertificated Securities Regulations 2001 (SI 2001/3755); |
| "CREST Manual" | the manual, as amended from time to time, produced by CRESTCo describing the CREST system and supplied by CRESTCo Limited to users and participants thereof; |
| "CREST Proxy Instruction" | the instruction whereby CREST members send a CREST message appointing a proxy for the meeting and instructing the proxy on how to vote; |
| "Disclosure Rules" | the Disclosure and Transparency Rules made by the FSA pursuant to FSMA governing the disclosure of information by listed companies; |
| "Disposal" | the proposed disposal of the Business by the Seller to the Purchaser pursuant to the Disposal Agreement; |
| "Disposal Agreement" | the conditional sale and purchase agreement dated 22 August 2012 between the Seller, the Company, the Purchaser and the Purchaser's Guarantor, described in more detail in Part III (Principal Terms of the Disposal) of this document; |
| "Disposal Resolution" | the ordinary resolution to approve the Disposal set out in the Notice of General Meeting; |
|---|---|
| "EBITDA" | earnings before interest, tax, depreciation and amortisation; |
| "EURIBOR" | Euro Interbank Offered Rate; |
| "Form of Proxy" | the form of proxy accompanying this document for use by Shareholders in connection with the General Meeting; |
| "FSA" | the Financial Services Authority of the United Kingdom; |
| "FSMA" | the Financial Services and Markets Act 2000, as amended; |
| "General Meeting" | the General Meeting of the Company convened by the Notice of General Meeting to be held at London Hilton on Park Lane, 22 Park Lane, London W1K 1BE on 25 October 2012 at 9.00 a.m. or any reconvened meeting following any adjournment thereof; |
| "Group" | in respect of any time prior to Closing, Premier Foods and its subsidiaries and subsidiary undertakings, including HSSL and the Business and, in respect of any time following Closing, the Continuing Group; |
| "Hain" | The Hain Celestial Group, Inc.; |
| "Hain Stock" | the common stock issued by Hain and listed on NASDAQ; |
| "Hive Down Agreement" | the intra-group hive down agreement to be entered into between the Seller and HSSL in respect of the sale of the assets of the Business, described in more detail in Part III (Principal Terms of the Disposal) of this document; |
| "HSSL" | Histon Sweet Spreads Limited, a wholly-owned subsidiary of the Seller; |
| "lFRS" | International Financial Reporting Standards, as adopted by the European Union; |
| "LIBOR" | London Interbank Offered Rate; |
| "Listing Rules" | the Listing Rules made by the FSA pursuant to FSMA governing, inter alia, admission of securities to the Official List of the FSA; |
| "Notice of General Meeting" | the notice of the General Meeting set out at the end of this document; |
| "Ordinary Shares" | ordinary shares of £0.10 each in the capital of the Company; |
| "Premier Foods" or "Company" | Premier Foods plc, whose registered office is at Premier House, Centrium Business Park, Griffiths Way, St Albans, Hertfordshire, AL1 2RE; |
| "Purchaser" | Hain (in its capacity as purchaser under the terms of the Disposal Agreement) or such wholly-owned subsidiary of Hain as Hain may elect to act as purchaser (in substitution for Hain) under the terms of the Disposal Agreement; |
| "Purchaser's Guarantor" | Hain (in its capacity as purchaser's guarantor under the terms of the Disposal Agreement); |
| "PwC" | PricewaterhouseCoopers LLP; |
| "Registrar" | Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA; |
|---|---|
| "Registration Rights Agreement" | the registration rights agreement, dated 22 August 2012, between Hain, Premier Foods and PFGL; |
| "SEC" | the U.S. Securities and Exchange Commission or any similar or successor agency than having jurisdiction to enforce the U.S. Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder; |
| "Seller" or "PFGL" | Premier Foods Group Limited, an indirect wholly-owned subsidiary of the Company; |
| "Shareholders" | holders of Ordinary Shares and "Shareholder" shall be construed accordingly; |
| "Spayne Lindsay" | Spayne Lindsay & Co LLP; |
| "Trading Day" | a day on which NASDAQ (or its successor listing authority) is open for trading; and |
| "Transaction Documents" | the Disposal Agreement, the Hive Down Agreement, the Seller Co-pack Agreement, the HSSL Co-pack Agreement, the Supply Agreement, the Tax Covenant and the Registration Rights Agreement. |
Notice is hereby given that a General Meeting of Premier Foods plc (the "Company") will be held at London Hilton on Park Lane, 22 Park Lane, London W1K 1BE on 25 October 2012 at 9.00 a.m. to consider and, if thought fit, to pass the following resolution as an ordinary resolution of the Company:
THAT the disposal of the Business (the "Disposal") as described in the circular to shareholders of the Company dated 28 September 2012 of which this Notice forms part (the "Circular") on the terms and subject to the conditions of a sale and purchase agreement dated 22 August 2012 between, amongst others, Premier Foods Goods Limited, the Company and The Hain Celestial Group, Inc. is hereby approved for the purposes of Chapter 10 of the Listing Rules of the Financial Services Authority and that each and any of the directors and the secretary of the Company (or a duly authorised committee of the directors) are hereby authorised to conclude and implement the Disposal in accordance with such terms and conditions and to make such amendments, modifications, variations, waivers and extensions of any of the terms of the Disposal as the directors or any such committee may deem necessary, expedient or appropriate (provided such amendments, modifications, variations, waivers and extensions are not of a material nature) and to any documents and arrangements connected with the Disposal as they may in their absolute discretion think necessary or desirable.
By order of the Board
Andrew McDonald General Counsel and Company Secretary
28 September 2012
Registered Office: Premier House Centrium Business Park Griffiths Way St Albans Hertfordshire AL1 2RE
Registered in England and Wales Company No. 05160050
Please bring with you the accompanying Admission Card. It will facilitate your right to attend, speak and vote, and will speed your admission. Please keep it until the end of the meeting. The meeting will commence at 9.00 a.m.
Pursuant to Rule 6.1.12 (2) of the Disclosure and Transparency Rules, as at 27 September 2012 (being the last business date prior to the publication of this notice), the Company had in issue 239,805,823 ordinary shares carrying one vote each. Therefore, the total voting rights in the Company as at 27 September 2012 are 239,805,823.
Pursuant to Regulation 41(1) of the Uncertificated Securities Regulations 2001 (S.I. 2001/3755), the Company specifies that only those shareholders who are registered on the Company's share register at 6.00 p.m. on Tuesday 23 October 2012 (the "Specified Time") shall be entitled to attend or vote at the General Meeting in respect of the ordinary shares in the capital of the Company registered in their names at that time. Changes to entries on the Register for certified and uncertified shares of the Company after the Specified Time shall be disregarded in determining the rights of any person to attend or vote at the meeting. Should the General Meeting be adjourned, members, to be entitled to attend, must have been entered on the Register by 6.00 p.m. two days prior to the adjourned General Meeting or, if the Company gives notice of the adjourned General Meeting, at the time specified in such notice.
A member of the Company which is a corporation may authorise a person or persons to act as its representative(s) at the General Meeting. In accordance with the provisions of the Companies Act 2006 (as amended by the Companies (Shareholders' Rights) Regulations 2009), each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual member of the Company, provided that they do not do so in relation to the same shares.
Shareholders can vote by either:
Whether or not you intend to attend the General Meeting, you are requested to complete the enclosed Form of Proxy and return it to the Company's registrar, together with any power of attorney or other authority (if any) under which it is signed, or a notarially certified copy thereof, at the following address: Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA as soon as possible and in any event so as to be received no later than 9.00 a.m. on 23 October 2012 or, in the event that the meeting is adjourned, not less than 48 hours before the time for holding any adjourned meeting. Any Form of Proxy received after this time will be void.
The completion and submission of a Form of Proxy will not prevent you from attending and voting in person if you so wish.
If you do not wish, or are unable, to attend, you may appoint either the Chairman of the meeting or one or more persons of your choice to exercise all or any of your rights to attend and to speak and vote at the meeting. That person is known as a "proxy". You are advised to use the enclosed Form of Proxy to appoint a proxy.
You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, additional proxy forms may be obtained by contacting the registrar, Equiniti, on their helpline 0871 384 2740 (or +44 (0) 121 415 7191 if calling from outside the UK) or you may photocopy the Form of Proxy enclosed with this notice. Calls to 0871 384 2740 cost 8p per minute from a BT landline, other providers' costs may vary. Lines are open 8.30 a.m. to 5.30 p.m., Monday to Friday.
A proxy need not be a shareholder and can be either an individual or a body corporate. At the meeting, the proxy can act for the member he or she represents. The proxy is valid for any adjournment of the meeting. A proxy may vote on any other business, which may properly come before the meeting, as that person thinks fit. If a proxy is not directed how to vote on an item of business, the proxy may vote, or abstain from voting, as they see fit.
The appointment of the proxy may specify the proportion or the number of votes that the proxy may exercise. Where more than one proxy is appointed and the appointment does not specify the proportion or number of the shareholder's votes, each proxy may exercise the number of votes proportionate to the number of proxies appointed.
If a proxy is instructed to abstain from voting, that person is directed not to vote on the shareholder's behalf and the shares which are the subject of the proxy appointment will not be counted in computing the required majority.
Please mark the appropriate box alongside the resolution on the Form of Proxy to indicate whether you wish your vote to be cast "for", or "against", or whether you wish to withhold your vote from, the resolution. Unless you give specific instructions on how to vote on the resolution, your proxy will be able, at his or her discretion, either to vote "for" or "against" the resolution or to withhold from voting.
Shareholders who return their Forms of Proxy with a direction how to vote but do not nominate the identity of their proxy will be taken to have appointed the Chairman of the meeting as their proxy to vote on their behalf. If a Form of Proxy is returned but the nominated proxy does not attend the meeting, the Chairman of the meeting will act in place of the nominated proxy and vote in accordance with any instructions. Proxy appointments in favour of the Chairman of the meeting, the Secretary or any other director which do not contain a direction how to vote will be used where possible to support the resolution proposed in this notice.
Before posting the Form of Proxy to the registrar, please check that you have signed it. In the case of joint holders, any of you may sign it.
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by following the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made by means of CREST to be valid, the appropriate CREST message (a "CREST Proxy Instruction") must be properly authenticated in accordance with Euroclear UK & Ireland Limited's ("EUI") specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by Equiniti (CREST participant RA19) by the latest time(s) for receipt of proxy appointments specified in the notice of meeting for this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which Equiniti is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings (www.euroclear.com/CREST).
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
Shareholders can register the appointment of a proxy electronically by logging on to www.sharevote.co.uk and registering their proxy vote by the latest time(s) for receipt of proxy appointments specified in the notice of meeting for this purpose. To use this service, shareholders will need their Voting ID, Task ID and Shareholder Reference Number printed on the accompanying Form of Proxy. Full details of the procedure are given on the website.
A person to whom this notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to enjoy information rights (a "Nominated Person") may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the General Meeting. If a Nominated Person has no such proxy appointment right, or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights. The statements of the rights of members in relation to the appointment of proxies above do not apply to a Nominated Person. The rights described in these paragraphs can only be exercised by registered members of the Company.
Any website or electronic address (within the meaning of Section 333(4) of the Companies Act 2006) provided either in this notice of General Meeting or in any related documents (including the Circular and the form of proxy) may not be used to communicate with the Company for any purposes other than those expressly stated.
Any member attending the meeting has the right to ask questions. The Company must cause to be answered any such question relating to the business being dealt with at the meeting but no such answer need be given if (a) to do so would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information; (b) the answer has already been given on a website in the form of an answer to a question; or (c) it is undesirable in the interests of the Company or the good order of the meeting that the question be answered.
A copy of this notice, and other information required by Section 311A of the Companies Act 2006, can be found at www.premierfoods.co.uk.
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