Premier Foods activist Paulson could find ready audience for M&A demand - MrgerMarket
- Shareholder appetite for buyer seen improved since last spring
- Investor would welcome activist push to offload pensions
Activist investor Paulson & Co’s call for the sale of Premier Foods [LON:PFD] is a welcome development, two minority shareholders said.
After the company warned on 18 January that FY16 profits would be 10% lower than projected, Paulson called for it to seek a buyer, according to media reports.
Premier had been the subject of repeated entreaties from suitor McCormick & Company [NYSE:MKC] last spring, prompting its stock price to swell above 60p from an undisturbed price of 31.5p, before a valuation gap sent McCormick walking and Premier shares to 42p.
While the board had good reason to insist on Premier’s long-term value when it spurned McCormick, the minority shareholders said they were eager for improvement. McCormick’s overtures undervalued the target amid an extended recovery, the board said at the time. The board then argued that shareholders should be patient with the company’s turnaround during and after the McCormick episode.
After repeated reassurances, last month’s profit warning “ticked me off”, one of the shareholders said. A bad quarter is acceptable, but Premier’s recovery is taking much longer than anticipated, he said. The top line is still in trouble, he added. Sales were down 1.8% in 1H16 year on year, according to company reports.
Premier has not been working out as an investment and “maybe we should be worried” as the company has not been able to show meaningful growth, the second shareholder said. But his fund is taking a long view and remains optimistic for two to three years out, he said.
Paulson’s involvement and reported 7.47% stake is welcome, as it keeps pressure on management, the two shareholders said. Paulson’s hoped-for M&A activity would be well received, given the value it could create for Premier investors, the shareholders added.
There are no apparent suitors at this time, the first shareholder noted, although Premier’s pension problems have stabilised and “the whole world is cash-rich". Premier’s total pension deficit fell from GBP 603m after FY13 to GBP 229m as of 1H16, according to company reports.
Even McCormick could re-enter the picture, the first shareholder said. At USD 1.45bn net debt, McCormick would not need to exceed 3x net debt/EBITDA to take on its former target, he said. The erstwhile suitor is only leveraged at 1.83x net debt/EBITDA, according to company reports.
McCormick did not respond to a request for comment.
Private equity buyers could also take a look, an independent sector banker said. Foreign exchange volatility, input costs, and continued margin pressure would be underlying concerns for them, he said.
Nissin Foods’ [TYO:2897] 20% stake in Premier, acquired amid McCormick’s approaches, could be an obstacle to a deal, a person familiar with the situation said.
The dream, the first shareholder said, is for Premier to hire an accountancy firm to offload its pensions to a third party such as SunLife. This now looks doable, given the abated pensions crisis, and an activist investor would have his full support in pushing the company to do this, he said.
Oasis Management, another activist investor, built a 5% stake in Premier over the course of 2016, but its objectives are unknown.
Oasis and Premier declined to comment. Paulson and Nissin did not respond to requests for comment.