Premier cuts price to save float

PREMIER Foods, the Typhoo tea-to-Smash mashed potato group, today slashed the price of shares in its planned flotation, in a move casting grave doubts on the sale of Sir Richard Branson's Virgin Mobile.

Potential investors last week had decided Premier was being too greedy in demanding 230p to 260p a share at a time when the stock market, and other food companies, were seeing share prices fall.

The company, advised by ABN Amro, JP Morgan and Merrill Lynch, has slashed the price band to 215p to 230p. At the middle of that range, the float will be valued at £552m instead of the £607m originally anticipated.

Sources close to the flotation said the marketing drive, principally among UK investors, had attracted takers for more than half of the shares at the higher price. But towards the end of the week and over the weekend, bankers realised they would have to cut the price to get the float away. There will be no significant change to the amount of shares being issued - about 248m.

Premier is being sold by its venture capitalist owners, Hicks, Muse, Tate & Furst, and has grown its profits aggressively since the company bought the old Hillsdown Holdings conglomerate. But rivals such as Northern Foods have had a tough time in the past year, while supermarket price wars and consolidation has led some analysts to doubt the value of investing in such companies.

The final pricing will be announced at the close of play today, with trading starting tomorrow morning. However, the main issue about Premier was the wider market for flotations. Although a flurry of tiny floats has been successful, larger ones such as Umbro and M&C Saatchi had to cut their prices to get them away.

Premier's decision puts even more pressure on Sir Richard Branson's £960m flotation of Virgin Mobile.

Institutions have already made it clear they view the current range of 235p to 285p as too high.

The Virgin roadshow returned from the US on Saturday, claiming high interest from American investors. But the proof of that will not become clear until joint bookrunners and sponsors JP Morgan and Morgan Stanley start gathering orders from US institutional investors this afternoon.

Analysts believe Branson could be prepared to cut the price range by a similar 10% to that taken by Premier. This is his first return to the City for 18 years since he took the whole Virgin Group private after just two years on the stock market.

If he pulls the Virgin Mobile initial public offering, it could jeopardise his aim to float the larger Virgin Mobile US business.

Branson and his bankers are due to finalise pricing on Tuesday night but, if they decide to cut the range, they should announce this later today or first thing tomorrow.