Founding family agrees £642m sale of Weetabix to Hicks, Muse

The famous Weetabix brand, which has been a staple of the British breakfast table since 1932, has been acquired for £642m by Hicks, Muse, Tate & Furst, an American private equity group thatowns such household names as Typhoo Tea, Branston Pickle, Hartleys Jam and Sun Pat peanut butter.

The deal, which has reaped a £130m fortune for the George family who have owned and run the business for the past 70 years, could spark a bidding war from rival food groups and private equity houses. These could include Associated British Foods and Doughty Hanson, the owner of Ranks Hovis McDougall.

Weetabix, which also owns the Alpen and Ready Brek brands, has a 14.2 per cent market share by volume of the breakfast cereal business and is the number two branded cereal manufacturer behind Kellogg's.

However, it has been hit by increasingly fierce competition on the supermarket shelves from bigger rivals, including Kellogg's, Nabisco and General Mills. The grocery chains themselves have also been eating into Weetabix's business with own-label cereals.

Sir Richard George, the chairman of Weetabix, said he suffered only a brief pang of regret at the sale when he gave final permission for the announcement to be released yesterday.

"It is very tough out there. If you want to survive you have to have very strong brands and give them the strongest support in advertising and marketing," he said.

In its 2002 results, Weetabix showed a decline in profits from £48.3m in 2001 to £44.4m, even though turnover rose to £361m from £349.4m. Its next results are due at the end of December.

Hicks, Muse plans to hold Weetabix separately from its other food interests, most of which it acquired in 1999 after its acquisition of Hillsdown Holdings, now renamed Premier Foods. Most recently it bought Ambrosia rice pudding from Unilever.

However, Lyndon Lea, a partner with Hicks, Muse, said there would be immediate opportunities to cross-promote its brands with Weetabix and benefit from greater promotional resources and more efficient distribution.

"Very few brands have the pulling power of Weetabix," said Mr Lea. "People go into stores looking for brands like these and when they don't find them they are disappointed.

"The business has operating margins of 17.5 per cent which is very high for the food industry. This deal is not simply about stripping out costs, which is a very short-term view. This has not been a badly run company," he said.

The deal, struck over a dinner between Sir Richard and Mr Lea, means windfalls of £40,000-£50,000 for 3,000 private investors, most of whom inherited their shares in the company from parents and grandparents who were involved in farming and milling in the Northamptonshire area where the company is based.

Another big winner is Tom Russo, a US fund manager who has been building a 14 per cent stake in the business, which is now worth £90m.

The company's non-voting A ordinary shares, mainly held by small shareholders, are quoted on the lightly regulated Ofex market. They are being offered a 67 per cent premium to Tuesday's closing price of £32.23. Shareholders will also receive a 100p-a-share dividend in lieu of the final dividend for the current financial deal.

However, the George family and other directors of the company control Weetabix's crucial voting shares and have already given irrevocable undertakings of more than 51 per cent of the voting shares to accept the Hicks, Muse deal. Holders of the voting shares will receive a 400p-a-share dividend.

But even with the irrevocable undertakings, a rival bid cannot be ruled out for what has been one of the most successful family-owned British companies of the post-war era. As an insurance policy, Hicks, Muse has negotiated a break fee of £3.2m should a rival offer be accepted by Weetabix shareholders.

The present Weetabix management will continue to run the company for Hicks, Muse while Sir Richard, who has run the business since 1970, will become non-executive chairman of Weetabix and Premier Foods.

"This is a very good deal for our shareholders and our employees," said Sir Richard.

"It will create a leading food group in the UK and enable us to accelerate the growth of the business and to realise the full potential of our brands."