United Biscuits sells Ross vegetables for pounds 44m
The deal comes just about a year after the group sold its troubled Keebler business in the US and is being seen as the latest attempt by the chief executive, Eric Nicoli, to reverse the declining fortunes of the group. It will result in a pounds 32m write-off of goodwill and pounds 19m of capitalised brand value.
The Ross operation was identified as non-core earlier this year after a reorganisation of the whole frozen and chilled foods operation to focus on "priority markets". The limited marketing and investment in the business, which includes the Ross frozen vegetable brand and Oriental Express ready meals, has left it lagging behind rivals such as Bird's Eye, Tendafrost, Findus and Heinz.
Although better-known in the north of England and Scotland, a spokesman said yesterday: "It has been very much the poor relation to Bird's Eye and has been very clearly non-core for some time, although it has been performing well recently."
United Biscuits' shares, which have been in more or less continuous decline since a peak of 434p in 1993, edged down another 0.5p to 197.5p yesterday. Analysts generally welcomed the deal, but said it was not unexpected.
One said that in recent years United Biscuits had concentrated on differentiating its frozen foods business by specific markets, such as the Linda McCartney range of vegetarian meals, San Marco pizzas and Young's Seafood. "Basically, I don't think they would claim that frozen vegetables is a great value- added sector," he said.
It is understood that the management-led group beat a number of other offers after Ross was "reasonably widely marketed" to possible buyers, although it is thought Bird's Eye, part of Unilever, might have faced competition problems in completing a deal. The winning group, RVP Foods, a specially-formed company, is backed by the private equity arm of the Union Bank of Switzerland. Of the total pounds 44m consideration, pounds 2m is deferred.
Ross had operating profits of pounds 6.2m on sales of pounds 56.1m in 1995 and net assets of pounds 11.4m last December. But one analyst suggested that level of profitability was not likely to be sustained, pointing to the distorting effect of higher potato prices following the drought that year. Although there will be some earnings dilution in the short term from the sale, United Biscuits is thought to concur that Ross has reached peak profitability. The proceeds of the deal will be used to reduce net borrowings which stood at pounds 387m in July.
The Ross Vegetable business was acquired in 1988 with Ross Young's, the food operation of Imperial Group.
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