Premier Foods says takeover talks with McCormick ‘constructive’
Premier Foods said takeover talks with US suitor McCormick were “constructive” as it prepared to present to shareholders its argument that the spice company’s bid undervalued the heavily-indebted UK group.
Shares in the maker of Mr Kipling cakes and Bisto gravies rose 5 per cent on Wednesday after the announcement that the discussions, which began on Monday, were going well.
The two sides had also held “detailed” discussions of the potentially thorny problem of Premier’s large pension liabilities, the company said.
Premier will aim to smooth ruffled feathers at some of its largest institutional shareholders by embarking on a round of visits to explain why it believes McCormick’s second offer of 65p a share still undervalues the company.
Two of Premier’s largest shareholders — Standard Life and Paulson & Co — last month questioned the board’s objectivity in striking a tie-up with Nissin, the Japanese instant noodle maker, after it had rejected two takeover offers from McCormick.
A 44-page document, posted on Premier’s website on Wednesday, revealed that Nissin, which now has a 19.9 per cent stake in the British company, offered “value creation potential” that had not been taken into account by McCormick’s offer.
It said Nissin’s global distribution could accelerate Premier’s international expansion strategy, especially in the US, China and Brazil.
Premier said it could also benefit from Nissin’s research and development capabilities, citing Nissin’s 200 patents “in respect of noodle technology alone”.
It said the technology could be applied to some of Premier’s foods, notably its Batchelor’s range of instant soups and noodles.
The Japanese company became Premier’s single biggest shareholder after acquiring a 17.3 per cent stake from Warburg Pincus, the private equity group. Nissin has since acquired more shares to give it a 19.9 per cent stake and therefore considerable sway over the future of the group.
Premier said the benefits of the tie-up would come on top of its medium-term sales outlook of 2-4 per cent growth, which it doubled last week from its previous forecast of 1-2 per cent growth.
Premier was once the UK’s largest food company but a debt-fuelled merger and acquisition spending spree brought it to the brink of collapse in 2008.
Analysts at Liberum said last week that Premier’s “high debt level at 3.9 times net debt/ebitda and large pension liability of £4.2bn weigh on its share price and constrain the group’s opportunities. In our view, Premier is better off as part of a larger group.”
McCormick has until April 20 to make a firm offer for Premier or walk away for six months, under UK takeover rules.
Premier’s shares closed up more than 5 per cent at 58.5p on Wednesday.