If anyone doubted that there’s more money to be earned shovelling capital about than actually making things, then the saga of Premier Foods should disabuse them. True, there is a happy ending, of sorts, for the shareholders, but the real happiness is shared among the bankers and brokers who charged for putting the business together and are now collecting saturated fat fees for rescuing it.
Premier is a glutinous mixture of Mr Kipling cakes, Ambrosia puddings, Sharwoods spices and many, many more second division brands, thown together a decade ago. Somehow, the financial engineers reasoned, the business was not only viable, but could carry £1.7bn of debt and pay its pension promises.
In 2004 Premier was valued at nearly £1.5bn. By 2009 the shares were in the 90 per cent club. Last year Premier flirted with disaster, but has now emerged as a working demonstration of the financier’s art, a confection of massive rights issue, share placing, high-yield bond and £300m credit facility, topped off with a deal to push Premier’s pension liability further into the future.
The prospectus runs to 269 indigestible pages, warning that shareholders who don’t take up their rights face 71 per cent dilution. The placing (to existing big shareholders) means that they face 24 per cent dilution, even if they do subscribe. The cream cakes are shared between eight firms of brokers, managers and advisers. Of the £828m raised, £57m goes in fees.
It’s quite a price tag, but in recent years Premier has run through executives like a knife through Hovis (now being hived off into a joint venture, perhaps proving that half a loaf is better than too much bread) and previous attempts at reconstruction have failed.
After this one, net assets of £350m support £513m of debt, on pro-forma sales of £856m for 2013. With the post-reconstruction market capitalisation around £700m, this is hardly a special offer. However, the placing discount of just 7 per cent signals confidence. The shares have risen on the news.
The point here is that consumer brands, even the likes of Marvel and Smash, have extraordinary longevity. Their fans keep buying them for years after they disappear from tv advertising. This reconstruction may be a gravy train for the advisers, but it allows the Premier management to run the business instead of fighting for survival. That’s probably more worthwhile, and definitely more fun.
Boo boom bust?
Heard the one about the Danish poet and the model? Well, boo, hoo. Or rather, since we must be careful here, Boo.com, which is not to be confused with Boohoo.com, a business which Mr Market is valuing at £560m when it comes to Aim next week. That’s 55 times the EBITDA for the 10 months to end-2013.
Boohoo is nothing to do with Boo, which ended in tears in 2001, the most glamorous victim of the dotcom bust. It boasted a website that few home computers could use, a global ambition that made JP Morgan look parochial, and was such a good thing that the advisers took their fees in shares rather than dull old cash.
It burned through $135m of capital in 18 months, and its history was suitably entitled From Concept to Catastrophe. The concept – online fashion retailing – was one on which many companies have since built fabulously valued businesses like, say Boohoo. So there’s really nothing to learn from the catastrophe. Is there?
Worth every penny
Like gmail, free-in-credit banking is a terrific bargain. We instinctively know that both cost the provider money, but the first search engine or bank to try and charge would soon learn how much we’re prepared to pay (nothing).
Now Ross McEwan, the latest wielder of the dustpan-and-brush for cleaning the Augean stable that is Royal Bank of Scotland, has joined the chorus saying free banking must go. Others have even argued that free banking forced the banks into bad behaviour, since they had to make their money somewhere.
Fortunately, Mr McEwan stopped short of offering to behave better if we’d agree to pay the cost of running our bank accounts. Still, if anyone has a bright idea for getting banking out of its self-dug hole, they could always send him an email..
This is my FT column from last Saturday (with the Hovis joke restored)