Premier Foods rejects overture from McCormick

by Eric Schroeder
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Premier Foods products and brands
Premier's product portfolio includes sweet goods, cooking sauces, flavors and seasonings, and soups.

ST. ALBANS, U.K. — The board of directors of Premier Foods P.L.C. has rejected an approach by Sparks, Md.-based McCormick & Co., Inc., saying the latter’s offer of 60 pence per share “significantly undervalues the company and its prospects.” The offer of 60 pence per share was made on March 14, a little more than a month after Premier rejected a McCormick offer of 52 pence per share.

David Beever, Premier Foods
David Beever, chairman of Premier

“McCormick’s proposal represents an attempt to capture the upside value embedded in Premier’s business that rightfully belongs to Premier’s shareholders,” said David Beever, chairman of Premier, whose product portfolio includes sweet goods, cooking sauces, flavors and seasonings, and soups. “The proposal fails to recognize 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.”

With approximately 826,450,000 shares outstanding, McCormick’s latest offer of 60 pence per share valued Premier Foods at about £496 million ($704 million). Premier’s share price on March 22 closed at 31.50 pence on the London Stock Exchange, but by mid-morning on March 23 was trading as high as 51.75 pence.

Premier said that while the price per share indicated in McCormick’s proposal is significantly above the current share price, due to Premier’s specific capital structure, the board considered that shareholders should evaluate the premium implicit in McCormick’s proposal with reference to Premier’s enterprise value (which includes allowances for financial debt and ongoing pension obligations).  On this basis, Premier said the offer represents “an insufficient premium” that does not fairly reflect the benefit to McCormick of gaining control of Premier.

Premier’s board also said it does not believe that the multiple of enterprise value to EBITDA implied in McCormick’s proposal fairly reflects Premier’s growth prospects. The board considers that the net present value of the future cash flows expected to arise from Premier’s growth plans would imply a price per share significantly above the indicative price.

Under British takeover rules, McCormick now has until April 20 to announce a firm intention to make an offer for Premier or announce that it does not intend to make an offer.

Last fall, Alan Wilson, chairman and chief executive officer of McCormick, said the acquisitions the company was making and was continuing to target are those leading companies in markets where McCormick has either a small presence or no presence. The company broadened its global footprint early in 2015 with the purchase of Drogheria & Alimentari, a privately held spices and seasonings company based in Italy, for approximately €85 million.

Strategy delivering results

Under the leadership of c.e.o. Gavin Darby, Premier believes it has established a foundation for significant growth and shareholder value creation as an independent company. The company said it has a strong and valuable portfolio of market leading brands, extensive distribution across key retail channels, a well-invested manufacturing base and strong operational cash flows.

Cadbury Cakes, Premier Foods
Some of Premier's biggest brands include Cadbury cakes, Mr. Kipling, Oxo and Bisto.

Since 2014, Premier has more than doubled its rate of new product innovation, launching a range of new products, packaging formats and line extensions to meet changing consumer trends.

The company said it expects to increase significantly its investment in consumer marketing from approximately £25 million in the 2013-14 financial year to approximately £36 million in the 2015-16 financial year. The investments behind some of the company’s biggest brands, including Mr. Kipling, Cadbury cakes, Oxo and Bisto, delivered gains in volume, value, market share and household penetration in 2015. Additionally, the company said it is driving growth in channels beyond supermarkets, including discounters, on-line and international.

Premier also believes it has put forth strategic initiatives to accelerate growth across its three business units: Grocery, Sweet Treats and International. The initiatives are expected to incur initial upfront investment of £2 million to £4 million in the full year 2016-17 and will leverage the company’s existing platforms, infrastructure and brand presence to expand further into new formats, channels and markets.

Mr. Kipling single-serve cakes, Premier Foods
Premier plans to build on the successful trial of its Cake-To-Go range of Mr. Kipling twin pack slices.

For example, Premier said within its Sweet Treats business unit it plans to build on the successful trial of its Cake-To-Go range of Mr. Kipling twin pack slices and Cadbury mini roll twin pack by accelerating growth of brands in broader convenience channels. Meanwhile, in International, Premier plans to step-change the size of its international business by focusing on accelerating the expansion of its cake brands in the United States and other geographies using the company’s differentiated offering, unique formats and packaging.

Partnering with Nissin Foods

After several years of discussing potential strategic opportunities, Premier said it has agreed to enter into a co-operation agreement with Nissin Foods Holdings Co., Ltd., Tokyo. The partnership has the potential for “significant long-term value creation for both organizations,” Premier said.

Nissin Foods Top Ramen and Cup Noodles
Nissin offers brands such as Cup Noodles, Soba and Top Ramen.

Pointing to ways the two companies may benefit from the partnership, Premier said it will gain access to Nissin’s innovative products and formats to distribute in the U.K. market under both company’s brands, as well as enable Premier to benefit from Nissin’s international scale to accelerate the distribution of Premier’s products in key international markets. Additionally, gaining access to Nissin’s significant intellectual property, innovation and technical know-how is expected to lead to the development of new products.

Nissin has annual revenues of approximately $3.8 billion and operating profit of around $216 million. The company operates in 19 different countries, spanning Asia Pacific, the Americas, Europe, Middle East and Africa, and is a global leader in instant noodles, holding the No. 1 or No. 2 positions in key markets, including Japan, the United States and Brazil. Nissin also has a growing presence in chilled and frozen foods, cereal-based confectionery and yogurt beverages in Japan. The company’s presence in Europe includes Hungary, Germany and Spain, with brands such as Cup Noodles, Soba and Top Ramen.

Gavin Darby, Premier Foods
Gavin Darby, c.e.o. of Premier Foods
“This is an exceptional opportunity for us to gain a major strategic partner that understands our business and supports our growth ambitions,” Mr. Darby said. “We look forward to working with Nissin to explore ways our two businesses can co-operate to better serve both our customers and our shareholders.”
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