Premier Foods under fire as McCormick’s abandons pursuit
Premier Foods came under attack from shareholders after McCormick, the US spice maker, walked away from a proposed £537m takeover, precipitating a near 27 per cent drop in the British cake and custard makers’ shares.
Paulson & Co, the Wall Street hedge fund headed by John Paulson, said it was “extremely disappointing that the board could not recommend an offer”.
Premier, which makes Mr Kipling cakes and Ambrosia custard, has rejected three informal offers from the maker of Schwartz spices.
John Baillie, director at Mole Valley Asset Management, with less than 1 per cent of Premier’s shares, said: “The management has played its hand badly from start to finish. The pressure is on them to show they were right to play hardball — and to deliver.”
But David Beever, Premier chairman, said most shareholders were supportive: “We have been meeting our shareholders and the majority recognise that we have strong growth plans to go forward,” he said.
He added that the board’s decision to reject the 65p per share indicative offer as undervaluing the company had been unanimous.
Asked whether Premier had received any other approaches, Mr Beever said: “No”.
Alan Wilson, McCormick’s chairman, told Premier on Tuesday night that the group would not come up with a fourth proposal after the UK group had rejected its informal offer which was more than double the 31.5p price before disclosure of the takeover interest three weeks ago.
McCormick said on Wednesday: “It would not be able to propose a price that would be recommended by the board of Premier Foods while also delivering appropriate returns for McCormick shareholders.”
But it acknowledged that its due diligence had been conducted “in an open and collaborative spirit”.
Paulson, which holds 7 per cent of Premier’s shares, and Standard Life last month questioned the board’s objectivity in striking a tie-up with Nissin, the Japanese instant noodle-maker, after rejecting McCormick’s offers.
The highly-indebted Premier, which has been through a restructuring under Gavin Darby, chief executive, said it saw “a strong future for an independent Premier Foods and believes that the foundations have been laid for significant growth and shareholder value creation”.
Premier said its tie-up with Nissin, which now has 19.9 per cent stake, would “accelerate its growth”. It has doubled its medium-term sales growth outlook from 1-2 per cent to 2-4 per cent.
In January, the group reported quarterly sales growth of 0.1 per cent.
The collapse of McCormick’s interest leaves Nissin free to take a seat on Premier’s board, if it requests it. The noodle maker paid 63p a share to acquire its initial 17.3 per cent stake from Warburg Pincus, the private equity group, and has since raised its stake to 19.9 per cent.
Mark Brumby, analyst at Langton Capital said: “A month ago, Premier was a friendless, highly indebted and un-investable basket case. Now it has had bid approaches, has a supportive shareholder [Nissin] and could grow at double the rate previously asserted.”
Analysts at Davy Research said McCormick’s decision to walk away put “an onus on Premier’s board and senior management to deliver” on its growth targets.
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. Its shares closed down 26.75 per cent on Wednesday at 41.75p.