MergerMarket
* Nissin would like to increase stake from 19.9% — company spokesperson
* Nissin-Premier commercial partnership unlikely to proceed if McCormick bid prevails
* Premier’s pension scheme means McCormick unlikely to face other rivals
As merger talks with McCormick & Company [NYSE:MKC] continue, Nissin Foods Holdings [TYO:2897] could be interested in further increasing its stake in Premier Foods [LON:PFD], a Nissin spokesperson and an independent sector advisor said.
The spokesperson declined to comment on whether such an increase would amount to a rival bid, but he said Nissin would try to strengthen its tie-up relations by acquiring additional Premier Foods shares, on top of the 19.9% it currently holds.
A stake increase would come as Premier Foods shares lag the 63p per share Nissin paid exiting Premier Foods shareholder Warburg Pincus for a 17.3% stake last month. As this news service reported, Nissin’s current stake in Premier Foods is unlikely to be considered a frustrating action, but stands in the way of an eventual squeeze-out by McCormick, which would require 90% approval. Further stakebuilding by Nissin to 25%, however, could thwart a scheme of arrangement between Premier Foods and McCormick, which would require the consent of 75% of Premier shareholders.
It is not clear whether an increase in shares would be a prelude to a full bid. Premier could see Nissin as a potential “white knight” amid ongoing negotiations with McCormick, suggested the Nissin spokesperson and a second independent sector advisor. The Nissin-Premier tie-up, promoted in a presentation to shareholders last week, gives Premier Foods CEO Gavin Darby a growth opportunity to fall back on in case negotiations with McCormick fall through, the second advisor added.
Nissin has also signed a commercial partnership with Premier, conditional on the company no longer being under an offer period. This arrangement appears to be a prelude to Nissin taking a larger stake in the company, said the first advisor.
Nissin has a history of being a white knight in a hostile bid. Its largest acquisition was made in 2006 when it interrupted Steel Partners' [NYSE:SPLP] hostile bid for Myojo Foods as a white knight. Nissin offered JPY 870 per share, well above the JPY 700 offered by Steel Partners, as reported.
The potential acquirer also has access to financing, the Nissin spokesperson said. The company can borrow freely from its lead main bank, Mizuho, as well as from Bank of Tokyo Mitsubishi UFJ and Sumitomo Mitsui Banking, he added. At the end of March 2015, it had JPY 94.4bn in cash and deposits while it had JPY 3.9bn in short-term borrowing and JPY 9.5bn in long-term borrowing.
The Nissin-Premier partnership would give Nissin a better position in Europe and a range of new products to sell through its own regional channels, said the spokesperson and the second advisor. Nissin has footholds in Germany and Hungary and distribution networks in Spain and France, but still lacks a UK presence, said the spokesperson. Nissin already has a strong presence in Asia and North America, and expansion in Europe fits its global strategy, noted an independent sector analyst.
However, as McCormick is a global company with an established East Asian presence and could already overlap with Nissin, it would be unlikely that Nissin would seek a similar partnership with Premier under McCormick control, said the second advisor.
Beyond Nissin, other rival bids for Premier are unlikely, said a second sector advisor. Given the size of Premier’s pension scheme, a private equity bidder for the company would be unlikely, said the second advisor, a minority shareholder, and an independent pensions consultant.
A rival bid — even from an industry peer — would be unlikely, as Premier’s eclectic range of brands would be unlikely to fit any single bidder’s current needs, the second advisor said. Moreover, Premier’s pension scheme is liable to frighten off all but the most far-sighted offerors, the second advisor added.
Nissin and Premier had been talking about various business and capital tie-up possibilities, including an acquisition, for some time before McCormick’s initial 52p/share approach in February, said the Nissin spokesperson. Upon McCormick’s second approach, at 60p/share in March, the commercial partnership was reached in a matter of days, said the spokesperson, and Nissin simultaneously bought a 17.3% stake from Warburg Pincus.
Premier Foods did not respond to a request for comment..