New bread for Hovis as Premier Foods offers slice for £200m investment deal

New bread … Hovis owner Premier Foods is entering a joint venture with Gores Group, with expectations to unlock £200m investment over the next five years. Photograph: Premier Foods/PA

It is enough to make the baker's boy choke on his bread and butter. Hovis has fallen under the control of a Los-Angeles based private equityfirm, ending 125 years of full British ownership.

Troubled parent company Premier Foods, based in St Albans, Hertfordshire, is selling a 51% stake in Hovis to the US investment firm The Gores Group, in a deal valuing the bread business at £87.5m. The deal is expected to unlock £200m investment over the next five years.

Premier will retain a 49% stake and get £28m in cash, which it has promised to invest into its grocery business, including £20m on a Snack Pack cake slice line at its manufacturing site in Carlton, Barnsley, South Yorkshire.

The group, which also makes Ambrosia custard and Oxo stock cubes, said the deal would allow Hovis to "continue its return to profitable growth". The deal is expected to be closed in this spring, although it still has to win approval from shareholders and competition authorities at the European commission.

Hovis was once a staple in Britons' shopping baskets; its 1973 TV commercial featuring a boy toiling up a cobbled street on a bike laden with bread, to the strains of Dvorak's New World Symphony, has been voted Britain's most popular ad.

But its granary loaves have fallen out of favour as consumers have ditched sliced bread for wraps, ciabattas and pain de campagne from supermarket bakeries. Some, including prime minister David Cameron, prefer to bake their own bread in pricey machines.

Consumer research group Mintel reported last year that the volume of sliced bread eaten by the British had fallen by almost 8% since 2008 to 1,372m kg.

Premier Foods, which closed two bakeries and axed 900 jobs in 2012, announced last year it was searching for a partner to bring new life to its bread business.

The Gores Group hopes to capitalise on the heritage associations of Hovis, a brand name coined in 1890 to promote a wheatgerm loaf developed by a Macclesfield baker. The new company will be led by Bob Spooner, the current managing director for bread at Premier Foods, who has overseen the most recent round of job cuts.

Fernando Goni, managing director at Gores, said the group saw "significant untapped potential in such a well-loved, household name", adding: "We are excited to partner with Premier Foods to revive the Hovis brand and spearhead re-investment across the bread business."

Gavin Darby, chief executive of Premier Foods, said the sale was a great deal for the company. "We can now focus our attention and resources on developing our category leading grocery brands."

In June, Premier Foods reported a narrowing of its losses to £23.5m in its latest half-year results. The company has been offloading brands, such as Sarson's vinegar and the Branston range of pickles to concentrate on eight core brands including Hovis and Mr Kipling.

Analysts at Shore Capital welcomed the Gores deal "as it can start to allow the value of Premier's grocery brands to emerge", but warning: "Such emergence, however, depends upon the successful completion of the capital restructuring."