Mr Kipling and Mother's Pride come to market in £1.3bn float

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The Independent Online

Mr Kipling is coming to the stock market as part of a £1.3bn float of Ranks Hovis McDougall, the food group now known simply as RHM.

Mr Kipling is coming to the stock market as part of a £1.3bn float of Ranks Hovis McDougall, the food group now known simply as RHM.

Ian McMahon, the chief executive, is selling a quarter of his stake, netting him about £1.25m. The presence of another large quoted food company immediately raised the prospect of an eventual merger between RHM and the slightly smaller Premier Foods, the Branston Pickle and Typhoo Tea business valued at £800m.

Mr McMahon said: "There is a role RHM should be playing in consolidating what is a highly fragmented market. We have a solid platform to make acquisitions. Premier is a very successful branded company that's going out there and making a lot of acquisitions. I'm not going to comment on specific businesses I might have in mind but the market out there could do with a degree of consolidation and we should be leading it."

RHM is being sold by Doughty Hanson, the private equity fund, which intends to maintain a "significant shareholding" after the float. Doughty Hanson floated Umbro, the sportswear maker, last year and now has a 33 per cent stake, a level thought likely to be repeated with RHM, where it owns nearly 100 per cent.

Apart from giving Doughty Hanson a way of selling its investment, the float is also aimed at paying down debt and raising cash to plug the company's pension deficit. A payment of £125m is planned for the pension fund, leaving a similar sized deficit outstanding. Debt will be cut from £929m to £711m.

RHM owns household food brands including Mr Kipling cakes, Bisto, Sharwood's Asian sauces, Frank Cooper's marmalade and Mother's Pride bread. Over the year to the end of April, RHM had sales of £1.53bn compared with £1.52bn the year before. It had operating profits of £155m, up from £121m.

Since taking over at the group two years ago, Mr McMahon has embarked on a rationalisation programme, integrating what were previously independently run business units within the group. He has generated £20m of cost savings through more efficient procurement processes and increased operating profit margins from 8 per cent to 10.1 per cent. "We need to drive our top line growth but we are not fooling ourselves; the market we are operating in is not an industry with high levels of top line growth," Mr McMahon said.

Doughty Hanson bought the business in 2000 for £1.1bn including debt. The deal involved a £300m equity investment which could be repaid up to four times. RHM announced yesterday that Jan du Plessis, the chairman of British American Tobacco, will become its new chairman.