£500m bidding war for HP Sauce

TWO of the nation's mealtime favourites, HP Sauce and Lea & Perrins, could be on their way back into British ownership in a bidding war that might reach £500m.

French dairy products giant Danone, which also owns the Evian and Volvic water brands, has instructed investment bank Lazard to sound out potential buyers for the sauces along with other brands in the HP Foods division.

Lazard, which has declined to comment, has so far approached only a few potential trade and private equity buyers. But insiders say bidding should be competitive, with big names such as Unilever, Heinz and Kraft likely to be interested. Only last year, Financial Mail on Sunday revealed that Associated British Foods, which makes Ryvita crispbread and Twinings Tea, was believed to have been eyeing HP Foods.

ABF, controlled by the Weston family, has said it intends to keep investing through acquisition. For example, its discount clothing brand Primark has been identified as a potential bidder for Littlewoods, the retail chain being sold by the Barclay brothers.

Ownership by ABF could be seen by some as fitting because Fortnum & Mason, the upmarket London department store owned by the Westons, was HP Sauce's first customer in 1903.

In 1988, Danone, then called BSN, bought HP Foods from industrial conglomerate Hanson for £199m. At the time, there were questions over the French company's ability to enable such iconic British brands to flourish. But HP has prospered under Danone, which has invested heavily in advertising, technology and in launching a stream of new products while maintaining the original recipes.

Worcester is still the home of Lea & Perrins while HP Sauce and Daddies are produced at Aston Cross, Birmingham. There are two other sites - in Lincolnshire and Fairlawn, America.

Celebrity chef Jamie Oliver has been one of Lea & Perrins' most enthusiastic supporters since his wife Jools introduced him to the sauce. HP Foods' other key brand is Amoy, which produces a range of Chinese sauces and noodles. It is unclear whether this will be included in the sale.

HP Sauce came into being in 1900 because of the woeful finances of FG Garton of Nottingham, who owed £150 to Edwin Moore, owner of the Midland Vinegar Company. Moore accepted Garton's recipe for a homemade sauce as payment, calling it 'HP' when it was said to have been spotted on a table in the Houses of Parliament.

Meanwhile, Catering giant Compass has won its first deal to supply school dinners since refusing to bid for local education authority contracts worth less than 55p a meal. Scolarest, an arm of Compass that has figured heavily in Jamie Oliver's School Dinners series on Channel 4, has secured a two-year extension to provide school meals in Durham with less salt, sugar, fat and processed meat. But parents will bear the brunt of the increased cost as each meal will go up from £1.35 to £1.50.

Compass shares are still in the doldrums after a profits warning last September that was blamed partly on Scolarest bidding too cheaply for school dinner contracts. Despite its unparalleled ability to buy in bulk, Scolarest - the market leader serving 2,000 schools - claimed the Government provision of about 43p a day for food costs was not enough if targets for healthy eating were also to be met. French rival Sodexho has also introduced a 55p minimum for its contracts. Another major player, Rentokil's Initial Catering Services, said it would operate a case-by-case approach.

The Durham school featured in School Dinners has opted out of the Scolarest contract. Yvonne Ryle, head of Eden Community School in Peterlee, said: 'We want a return to traditional cooking and natural ingredients. Processed food and additives were having a bad impact on children's behaviour.'