Premier Foods investors urge McCormick talks
Two major shareholders in Premier Foods urged it on Thursday to hold talks with US suitor McCormick, after the British company formed an alliance with Japanese instant noodle maker Nissin Foods.
Premier Foods, home to familiar British brands including Mr Kipling cakes and Bisto gravy, has rebuffed two approaches from spices maker McCormick, saying its latest proposal of 60 pence per share worth £1.5bn, including debt and pension liabilities, "significantly undervalued" it.
The British firm instead agreed a cooperation deal with Nissin that on Thursday also saw the Japanese company become Premier's largest shareholder. Nissin bought a 17.3pc stake from private equity firm Warburg Pincus for 63p per share, or £90m.
However, Paulson & Co and Standard Life Investments, two other top shareholders, criticised Premier's board, questioning its objectivity and commitment to maximising shareholder value.
Paulson, which owns more than 7pc of Premier, said the board appeared to be favouring Nissin to the detriment of other shareholders who were not offered the same premium paid by the Japanese firm, or other bidders that could be discouraged by Nissin's stake.
"The company should fully engage with McCormick," Orkun Kilic of Paulson Europe said in a statement, adding McCormick, with its market value of $12bn, was far better able to safeguard future pension obligations than Premier, which it said had a market capitalisation of $650m.
"Should McCormick, or any other bona fide potential offeror, come forward with an improved proposal that better reflects the board's assessment of the company’s underlying value over the longer term, the Board would give such offer careful consideration," Premier said.
Following the two rejections, McCormick said on Thursday it was willing to proceed with "limited confirmatory due diligence" that only comprised a review of pensions documentation, current trading and material contracts.
It said it would be willing to consider increasing its proposal if justified following that review.
The value of Premier Foods has been depressed by a high debt load and pension obligations following an acquisition spree, but it offers a range of mainstream grocery brands that are slow-growing but profitable.
Premier shares, which soared 70pc on Wednesday, closed down 3pc at 52p in London. Shares of McCormick were up 0.5pc at $96.35 in New York at 7.20pm.
"In the past, they've (McCormick) been pretty disciplined about what they're willing to pay and generally acquisitions have been accretive very quickly to their earnings," said Mark Hughes, director of investment research at Lafayette Investments in Ashton, Maryland. McCormick is about 2 percent of its portfolio.
Following an initial approach in February and a second one in March, McCormick now has until April 20 to make a firm offer for Premier under British takeover rules.
McCormick, known for its spices and Lawry's seasonings, said that despite several efforts to "enter into a meaningful dialogue" with Premier, the company had been "unwilling to engage constructively," giving it only one face-to-face meeting with Premier's chairman, on February 12.
Under the terms of Premier's deal with Nissin, Nissin can nominate a board director and pledged not to make an outright bid for all of Premier for at least six months.
David Cumming of Standard Life Investments, which also has a roughly 7pc stake in Premier, called McCormick's proposal too low, but added the fund arm of insurer Standard Life was open to a bid at a higher level.
Premier was not immediately available to comment on the shareholder statements, though earlier on Thursday it said it would consider improved proposals.