The uncertainty surrounding the future of UK baker Inter Link Foods grew again today (12 June) as trading in the company’s shares was suspended. Inter Link’s bankers have rebuffed an initial approach from Irish food group McCambridge but, as Dean Best writes, the saga surrounding the cake maker is far from over.
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The future of Inter Link Foods seems as uncertain as ever after a day of frenzied activity at the ailing UK baker.
Inter Link, the maker of malt loaf brand Soreen and private-label cakes for UK supermarkets, has been the subject of intense speculation in recent weeks. Profit warnings, falling sales, management changes and takeover talk have raised questions over Inter Link’s future and forced the company to conduct a review of its business.
Last month, hope grew for Inter Link and its shareholders when Irish food group McCambridge registered its interest in buying the company. Other trade and private equity buyers, meanwhile, were also said to be eyeing all or part of the group.
However, today (12 June) Inter Link suspended shares in the company after a breakdown in the talks with McCambridge. Discussions between the two sides collapsed over a “pre-condition” that McCambridge inserted into its indicative takeover offer. Inter Link’s bankers, which are owed around GBP65m (US$128m), were unhappy with the offer drawn up by McCambridge.
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By GlobalDataSpeaking to just-food, Inter Link chairman Jeremy Hamer indicates that McCambridge’s offer would have given Inter Link shareholders a premium on their shares, while also asking the banks to take a write-down on the company’s debt. “The bank would not agree to such a write-off if the shareholders were getting any payments,” Hamer says.
The bad news for shareholders mounted when Inter Link subsequently revealed the other interested parties had also written similar conditions into their offers. Nevertheless, Inter Link said it remained in talks with “a number of parties” over a possible sale of the business.
At lunchtime today, the situation changed. Hamer says that McCambridge have come back with an “alternative offer” for Inter Link. However, the fresh proposal means that none of the offers on the table are for shares in the company.
“We now have a number of offers, none of which offer the shareholders anything,” Hamer says. “However, in the context of us needing to reshape our balance sheet and get a stable future for the business, we do need to work on these offers and see if we can maximise the situation for all stakeholders. That’s everyone from the bank to our suppliers, customers, staff and our shareholders.”
A takeover of Inter Link does seem to be the only remedy to secure the company’s future. However, without an offer on the table for the company’s shares, it remains unclear whether shareholders will benefit from any bid. “Clearly the banks are calling the shots, which isn’t surprising given their heavy weighting within the (company’s) enterprise value,” one City analyst tells just-food.
The review of the Inter Link business is ongoing with Hamer and the rest of the Inter Link board studying the offers on the table. Some industry watchers have suggested a sale of Soreen could be a way for Inter Link to generate some cash. That idea, however, meets a firm rebuttal from Inter Link. “That is not the directors’ view,” insists Hamer.
Another industry analyst also maintains Soreen could provide the bedrock for any turnaround at the company. “It’s quite a decent, premium, branded business. They’ve just built the extra plant for it and it ought to be doing over GBP20m of sales in a year or two.”
However, it is Inter Link’s position as one of the UK’s leading suppliers of own-label cakes that has been a key factor behind the company’s financial woes. Hamer says brands like Premier Foods’ Mr Kipling have taken some share from Inter Link, a view supported by industry watchers.
“Mr Kipling had big problems but has come back very aggressively and made life tough for everybody that happens to be in their way,” the industry analyst tells just-food. The analyst adds that Inter Link has found it tough to maintain its volumes in the face of competition from brands.
“Inter Link is basically a low-cost, mainstream market operator, and that’s not an easy place to be,” the analyst says. “You’ve got to be pretty efficient and you need to have strong volume momentum to deliver some cost-savings and efficiencies. Inter Link hasn’t got the volume momentum anymore.
“But if you’re positioned right, if you’ve got good assets and the right sort of business, there’s no reason why you shouldn’t make some sort of return. Inter Link is not a 10% margin business, but there’s no reason why it should not be a 4-5% margin business.”
Inter Link is far from being a broken business. The company is an important own-label supplier in the UK but with the country’s supermarkets putting ever-more pressure on suppliers – and with fierce competition from its branded rivals – Inter Link stands at something of a crossroads. The direction it takes will be critical to the future of the company.
