Premier takeover of RHM creates UK's top food maker

Britain's biggest food producer, spanning a vast range of iconic brands from Bisto and Mr Kipling cakes to Golden Shred marmalade and Smash instant potato, is to be created through the £2bn takeover of RHM by Premier Foods.

The chief executive of RMH, Ian McMahon, stands to collect a pay-off worth around £8.5m if the recommended takeover goes through.

The new enlarged group will leapfrog Mars, Nestlé and Northern Foods to become the country's number one food producer with sales of £2.6bn - more than 90 per cent of which will be within the UK - and a stable of 34 household-name brands.

Premier is offering one of its shares and 83.2p in cash for each RHM share, which will leave RHM shareholders with 41 per cent of the enlarged company. At last night's closing price, the offer values RMH at 365p-a-share, or £1.27bn. Premier is taking on a further £770m of RMH debt, taking the value of the deal to £2bn. RHM shares ended the day 31 per cent higher at 357.25p.

Premier provoked immediate fears over potential job losses by saying that it planned to make £85m of cost savings within three years. Some £50m will come from cost reductions at manufacturing facilities, a further £25m will come from lower purchasing costs and £10m will be saved by closing RHM's head office in Marlow, Buckinghamshire, which employs about 100 people. In total, the new group will have a workforce of 20,000.

The takeover is the latest in a spree of acquisitions undertaken by Premier since its stock market flotation two years ago. Its finance director, Paul Thomas, said Premier was actively looking for further UK brands to add to its portfolio.

Industry insiders said a bidding battle for RHM was unlikely as private equity buyers could not match the cost savings that Premier could achieve while Northern Foods was too small to bid and Associated British Foods would be ruled out on competition grounds. Any rival bidder would also have to pay Premier a break-fee of £12m. Mr Thomas said he was confident that the competition authorities would not require Premier to sell any brands as a condition of allowing the merger to proceed.

However, analysts suggested that the ownership of Bisto and Oxo under one roof might cause problems, as could Premier's share of the market for spreads and jams, where it will own Robertson's, Hartley's and Frank Cooper's together with Rose's, Gale's, Sun Pat and Golden Shred.

None of the RHM board will remain with the enlarged company.

Mr McMahon is on a one-year contract and earned £678,000 last year. In addition he has shares and share options worth a further £7.9m.