Kerry Group has cut its debt to £500 million after selling off most of Dalgety's flour milling business for £108 million and raising £66 million in a placing of 8.2 million new shares.
It is understood that since Kerry bought the entire Dalgety food ingredients business, it has received approaches from half a dozen potential buyers of the flour business, including Greencore and IAWS.
At the final reckoning, however, only Tomkins and ABF are understood to have been in the frame and Kerry entered exclusive negotiations with Tomkins this week before completing the deal on Wednesday night. Tomkins was one of the underbidders for the Dalgety business bought by Kerry for £394 million towards the end of January.
Kerry has sold six of Dalgety's Spillers flour mills to Tomkins but has retained one mill which will provide sufficient flour for Kerry's own requirements. The businesses being sold to Tomkins produced operating profits of £10.7 million sterling on sales of £148 million, with net assets of £44.5 million.
Analysts said that the multiple of 8.6 times operating profits was a good price for Kerry and reflected Tomkins' determination to consolidate its presence in the British flour market where its RHM subsidiary is market-leader with Associated British Foods.
The sale of the business to Tomkins is seen as a double blow for Greencore, as not only has Greencore failed in an acquisition that would have fitted its business like a glove, but Greencore's Kears bakery subsidiary will now have to source its flour requirements from two big players the newly-merged RHM/Spillers and ABF.
The asset sale and placing will have a significant impact on Kerry's balance sheet, with the postacquisition debt now falling from £660 million to around £500 million and the net cost of buying the Dalgety businesses it wants falling from £394 million to £286 million.
Two weeks ago, Kerry indicated that it intended to fund the Dalgety acquisition fully through borrowings and without asset disposals, but has now decided to raise a comparatively small amount of equity in the market after its shares rose to a new high of 855p on Wednesday.
A total of 6.19 million new shares have been placed with institutional investors at 815p each, a discount of less than 5 per cent on the market price, while, a further two million shares are being placed with Kerry employees at 820p each.
The difference in the price is because the institutional investors have to pay immediately for their new shares, while employees will not have to pay for the shares they take up under the placing until the end of March. Kerry Co-op will take up any shares not bought by staff under the 820p per share offer.
Assuming the staff take up their full complement of two million shares, the Kerry Co-op stake in Kerry Group will fall from 39 per cent to 37.3 per cent.
