QUORN owner Premier Foods yesterday agreed a deal to buy Mr Kipling manufacturers RHM for £1.23bn.

The proposed tie-up between Branston Pickle owner Premier and RHM was announced after a year of negotiations, and will create a business with annual sales of about £2.6bn - all of which will be in the UK.

Premier, which has Quorn plants at Billingham, Teesside and Stokesley, North Yorkshire, said the deal would result in £85m of annual savings and benefits.

Premier Foods' other brands include Hartley's and Angel Delight, while RHM is also known for Hovis, Paxo, Bisto and Sharwoods.

RHM's share price yesterday leapt by 31 per cent, closing at 357.25p, and analysts have not ruled out a rival offer being tabled.

Premier has been on the acquisition trail since it listed on the stock market two years ago. It bought Quorn-maker Marlow Foods last year for £172m and more recently acquired the UK arm of Oxo and Homepride firm Campbell Soup.

RHM, by contrast, has endured some challenging trading conditions since its flotation last year.

A year ago, the company said its cakes operation - including Lyons and Mr Kipling - was in trouble and recently warned that an increase in wheat prices would dent profits in the first half.

Last night, Premier said it would combine RHM's culinary brands and cake divisions into its grocery operation, while keeping RHM's breads business separate.

Premier chief executive Robert Schofield said: "The business has acquired some tremendous British brands. We've known (for some time) that this is a combination that had to happen. This is a natural combination that has compelling industrial logic."

RHM employs more than 15,000 people at 50 sites in the UK and France, and generated sales in excess of £1.5bn last year.