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Shares in RHM, which includes Hovis bread and Mr Kipling cakes in its range, are to be sold at 228p-285p, valuing the food conglomerate at well below the range indicated less than a month ago.

The pricing puts the potential capitalisation at £875m-£975m ($1.5bn-$1.7bn), compared with estimates of £1bn-£1.3bn in June.

Insiders said it had been set back after extensive pre-marketing by the banking syndicate and analysts research discovered the appetites was not sufficiently strong.

Also the company took the decision to underwrite the shares as well as carry out a book-building process which was interpreted by some analysts as a sign of nervousness.

Nevertheless, the flotation on July 19 will be one one of the largest initial public offerings on the London Stock Exchange this year and the company stressed that the reason for underwriting was to provide it with “certainty of execution and to allow us to focus on achieving a price at the upper end of the range”.

Jan du Plessis, the newly appointed chairman, said on Tuesday: “The fact that we have been able to underwrite more than £1.3bn in equity and debt highlights the market’s confidence in RHM and in its prospects for sustained future,’’

Richard Workman at Oriel Securities said: “With dividend guidance of at least £55m, on a mid-range price of 256½p , the yield is 5.9 per cent. Given this strong yield support and underwritten at 228p this should go very well”.

Doughty Hanson, which acquired RHM in 2000 from Tomkins, is expected to achieve a return of three times the original equity investment.

It is understood that Doughty first considered floating the company three years ago but investors were put off by the size of RHM’s pension deficit. Doughty has always refused to comment. There has also been a feeling that RHM was a mature business and therefore offered limited growth prospects.

Credit Suisse, which is leading the syndicate of five banks has underwritten the offer at 228p a share which guarantees an offer size of at least £561m. RHM said 185.2m new shares and 45.4m existing shares will be sold. It will use the proceeds of the float to contribute to its pension fund and repay debt.

RHM reported net income of £175.8m for the year to April. Operating profit before exceptionals was £155m in 2005, up £34m on the previous year. The group employs 16,000 people in the UK and makes flour, cakes, groceries and prepared meals.

Copyright The Financial Times Limited 2017. All rights reserved.

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