UK - Warburg invests £64m into Premier Foods

The placing represents 10.3% of the enlarged company and is part of a £379m share sale to raise funding. The shares are priced at 26p each, representing a 9% discount to the closing price on 04 March 2009, and will be ordinary shares only.

Warburg has also committed to subscribe to additional shares subject to clawback by existing shareholders, with the investor making an additional investment to the extent that existing shareholders do not take up their entitlements in full.

Premier Food is trying to reduce its £1.78bn debt. The company reported turnover of £2.6bn for 2008 and an operating loss of £40.5m in its preliminary statement.

The deal is seen by some as the beginning of a new trend for large-cap private equity funds; investing in liquidity-starved listed businesses through discounted rights issues - thereby putting capital to work without the need for (unavailable) leverage.

"Analysts estimate that listed corporates will need to raise up to EUR 300bn in 2009, most likely through rights issues. Only about EUR 100bn is thought to be available through traditional channels so many may turn to cash-rich private equity firms for the remainder," claims Tim Stocks, head of securities at UK law firm Taylor Wessing.

The deals are made profitable to private equity, Stocks asserts, due to the fact that the rights issues are offered at a discount to an already depressed stock price (in fact rights issues announced so far in 2009 have been at an average of a 57% discount).

As for whether LPs will be comfortable with this strategy shift, Stocks is bullish: "It might mean having to go back to LPs and changing the mandate by offering investors either a reduced commitment to, or to opt out of, the fund. But big firms have to find a way to deploy capital and the lack of debt limits their investment options."

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