Premier Foods plc, the UK group behind brands like Mr Kipling and Ambrosia, has rejected takeover interest from US spices and condiments group McCormick – while announcing a “co-operation agreement” with Japan’s Nissin Foods Holdings.
McCormick, the owner of brands including Schwartz and Ducros, has made two approaches to Premier Foods in the last month, both outlining possible offers for the business – the first at 52p a share and the second at 60p. Premier has rebuffed the interest, it told the London Stock Exchange this morning (23 March).
Premier Foods also informed the stock market it has agreed to enter a co-operation agreement with Nissin. The deal will, for example, see the two companies work to “accelerate the distribution” of Premier’s products in key overseas markets. The UK group 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.
McCormick made “an unsolicited, non-binding and highly conditional approach” to Premier Foods on 12 February, the UK firm told the London Stock Exchange this morning (23 March). The US company indicated it was looking to make a possible cash offer for Premier Foods worth 52p per share. On 14 March, McCormick returned with a second, potential bid worth 60p a share.
In its statement to the London Stock Exchange, Premier Foods 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 Foods and its shareholders”.
Premier Foods chairman David Beever 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.”
Over the past two years, Premier Foods has paid down its once high debt levels through initiatives including issuing new share capital and spinning off its Hovis bread business through a joint venture with US private-equity firm Gores Group. Since recapitalising its balance sheet, Premier Foods has worked to turn around the performance of its key brands – spanning categories such as bakery, sauces and gravy mixes – through a renewed focus on innovation and marketing as well as a range rationalisation that has helped lift profitability. The group is also identifying opportunities to expand sales of its so-called “second tier” brands in value channels including pound stores.
These initiatives would appear to be paying off and, in November, the UK food maker delivered its first sales increase for two years when it reported a 2.4% rise in second-quarter sales.
In today’s lengthy statement to the stock market, Premier Foods also revealed it mulling 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 any offer has become unconditional.