Produce Investments gained a grip on one of the world's most
famous potato varieties by buying Jersey Royal Company, which has suffered two
years of losses.
Produce Investments agreed to pay £15m for Jersey-based Jersey
Royal Company, one of the biggest growers of the Jersey Royal potato prized, besides
for its taste, as an early-season variety, a factor which often allows
producers a price premium.
"I am delighted we have been able to purchase such a well-known
business," said Barrie Clapham, the chairman of Produce Investments, which is
paying for the acquisition in part through a "significantly oversubscribed" £6.0m
The acquisition "takes the company into a very significant
sector of the potato market," Mr Clapham said, adding that "we are both excited
and confident about the future earnings potential".
In fact, Jersey Royal Company, while significantly profitable
in the past - reporting an operating profit of £4.98m in 2010, including the contribution
from its Kent Potato Company packing subsidiary – was hit two years ago by persistent
rains which provided dismal conditions for potato growers in much of northern Europe.
The group fell to an operating loss of £2.28m in 2012, and
remained narrowly in the red last year too, thanks to deterioration at its Jersey
Besides the poor weather "we believe operational issues also
had a part to play, Shore Capital said, proposing that "poor control" of stocks
may also have had a role.
"We believe it was a combination of poor seed control which,
when combined with challenging weather back in 2012 and 2013, led to a poor
yield performance in Jersey," said the broker, which arranged the share issue.
Jersey Royal producers typically hold back about one-third
of their crop every year for seed.
However, with Jersey Royal Company offering "a recovery
opportunity" for Produce Investments, Shore Capital was supportive of the deal,
saying it made "strategic and financial sense".
Jersey Royal is being purchased for roughly its book value, or
for 4.5 times forecast earnings before interest, tax, depreciation and
amortisation (ebitda) for 2015, a multiple which the broker termed "not overly aggressive".
Shares in Produce Investments, which also agreed to buy the
Peacock Farm potato washing and packing site in Jersey within three years for
£6.35m, stood 2.0% higher at 264.75p in afternoon deals in London.
The new shares were placed at 220p.
The deal comes at a time when UK potato prices have
retreated considerably from highs reached after the poor 2012 harvest.
Free-buy crop, that not sold into contract, are selling at
£137.88 a tonne a week ago - down 65% year on year – according to the Potato
An improved harvest last year of 5.5m tonnes, up 23% year on
year, has helped rebuild British potato stocks to 1.0m tonnes as of the end of
March, up 25% year on year, the council said last week.