McCormick & Co. today (23 March) insisted its proposal to buy Premier Foods plc – rebuffed by the Mr Kipling maker – “should be well received” by the UK group’s investors.
Premier Foods revealed this morning it has spurned two approaches from McCormick over the last month. The second came on 14 March, when McCormick outlined a potential all-cash offer worth 60p per Premier Foods share, up from the initial indicative bid worth 52p, lodged on 12 February.
McCormick’s first move was described today by Premier Foods as “an unsolicited, non-binding and highly conditional approach”. Premier Foods also said the second approach “significantly undervalues the company and its prospects” and the company’s board “does not consider that the proposal would be in the best interests of Premier and its shareholders”.
This afternoon, McCormick said its first approach was “a detailed proposal” to buy Premier Foods, which the UK group’s board rejected. The Schwartz and Lawry’s owner said its second move was made on the basis it would lead to “prompt and full engagement” from Premier Foods, “including access to limited confirmatory due diligence, to agree a transaction on a recommended basis”. Premier Foods turned down the revised approach yesterday, however.
McCormick said the second proposal reflected “a substantial premium to all relevant recent Premier Foods share price metrics”. The 60p-per-share approach represented a 90% premium to Premier Foods’ share price before the announcement, and a 55% premium to the UK group’s 12-month, volume-weighted average share price of 38.6p for the period up to yesterday.
“In addition, the implied exit multiple of 10.3x pro forma 2015 EBITDA compares favourably with recent significant UK food transactions,” McCormick said. “McCormick believes that an all-cash offer at this level should be well received by Premier Foods’ shareholders, employees, pensioners and other stakeholders, and would provide Premier Foods’ shareholders with an attractive premium combined with the certainty of cash value now.”
Earlier today, Premier Foods chairman David Beever had said: “McCormick’s proposal represents an attempt to capture the upside value embedded in Premier’s business that rightfully belongs to Premier’s shareholders. The proposal fails to recognise the value of Premier’s performance to date and prospects for the future, including the strategic plans we have to accelerate growth. McCormick’s proposal significantly undervalues the business and the board has unanimously decided to reject it.”
McCormick outlined two reasons why it remains interested in Premier Foods. The company claimed an acquisition would “add a portfolio of iconic, household-name brands” that “complement McCormick’s product range and expertise”.
The US business said a deal would “significantly increase” its presence “in a large grocery retail market”.
McCormick said it would “leverage” its innovation and marketing as well as its “strong balance sheet” to “improve on the execution of Premier Foods’ strategy”.
It believes it can grow Premier Foods’ presence in international markets. The UK group generates the bulk of its sales domestically, but has been trying to build business in markets including the US, Australia and China.
McCormick also claimed it could “realise synergies” to lead to “further investment” in Premier Foods’ brands.
Under the UK Takeovers Code, McCormick is required to either announce a firm intention to make a bid for Premier Foods or state it does not intend to table an offer by 17:00 BST on 20 April. The deadline can be extended with the consent of the Takeovers Panel.
Alongside Premier Foods’ announcement to the London Stock Exchange this morning, the UK group said it had agreed to enter a co-operation agreement with Japan’s Nissin Foods Holdings. As part of the deal, the two companies will work to “accelerate the distribution” of Premier Foods’ products in key overseas markets. Premier Foods said the agreement could also give it “access to Nissin’s innovative products and formats” to distribute in the UK market under both the companies’ brands.
Premier Foods also revealed it is considering entering into what is called under UK Stock Exchange rules a conditional “relationship agreement” with Nissin. Such an arrangement could give Nissin the right to appoint a non-executive director to the Premier Foods board should the Japanese group take a minimum 15% stake in the company.
Premier Foods’ tie-up with Nissin is conditional on the UK group no longer being subject to an offer period under the country’s Takeovers Code and no suitor having announced that any offer had become unconditional.