View from the City

Bidding frenzy as food sector hots up

Food retailers and processors are increasingly being targeted by private equity specialists who tend to know little about food manufacturing or retailing but a great deal about raising finance, buying a company cheaply, and making a quick profit on a trade sale or re-introduction to the stockmarket.

Private equity firms buy up food companies - usually by way of a management buy out (MBO) or buy in - trim back costs, increase the operating profit margins and then sell the transformed company to a trade buyer, or refloat it on the stockmarket.

While the attractions of food companies escape UK investors, they do offer stability - people have to eat, come what may - added to which is the attractive rate at which they generate cash. The icing on the cake is usually the fact that there are often substantial property portfolios tucked away on the Balance Sheet at far less than their market values.

Incisive Media/Bridgepoint calculates the value of food buy-outs in Western Europe in 2005 soared to £3.8 billion. Other food firms bought up by private equity concerns include Findus, the Nordic frozen food company, and United Biscuits.

The speculation in the stockmarket is that possible bid targets in 2006 include Unilever via a MBO and Devro, the collagen sausage skin maker.

Sunday trading relaxation attracts growing criticism

Politicians are also getting involved in the groundswell of opposition over plans to relax Sunday trading laws. An All-party committee is seeking views on the matter from retailers, unions, consumer groups and employers' organisations over plans to extend opening hours.

Current legislation stops stores in England and Wales over 3,000 sq feet, from opening more than six hours between 10am and 6pm on Sundays. Over 150 MPs have signed up to a Commons motion against any further relaxation of the law. The DTI, which is carrying out a cost-benefit analysis on the matter over all the options available is working to an April 14 consultation deadline.

Carr's Milling falls back as animal feed market deteriorates

Cumbrian-based animal feed and agriculture group, Carr's Milling, saw shares fall back as it kept the market up to date with the gloomy news that the UK compound animal feed market has continued its downward slide. Carr's Milling reckons that the fall is due to rock-bottom milk prices and also animals being kept outside to feed due to the mild winter.

It also predicts its fertiliser sales will fall around 12 per cent in first half trading as farmers continue to fight against paying higher fertiliser prices resulting from sky-high energy prices.

Asda expansion

Asda is to take on 7,000 staff and open several new stores across the UK this year, owner Wal-Mart has said. The new stores will open in Fleetwood, Huntly, Feltham, Newton Abbot, Rushden, Alloa and Hounslow. The supermarket giant is putting money into expansion to win back market share from rivals such as Sainsbury's.

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