Premier Foods urged by major shareholder and suitor McCormick to 'engage'

US spice giant McCormick has appealed to investors in Premier Foods to consider its bid for the Mr Kipling and Ambrosia Creamed Rice owner, and said it might be willing to up its offer if the UK company's board were willing to "engage".

On Wednesday Premier revealed it had rejected bids at 52p and 60p from the US company as they were felt to as “significantly” undervalue its potential.

The FTSE smallcap company said it favoured a tie-up with Japan’s Nissin Foods, with which it on Thursday confirmed an agreement for the noodle-maker to acquire a 17.27% stake from an existing shareholder at 63p a share.

McCormick, which is now subject to a put-up-or-shut-up deadline of 1700 BST on 20 April, later on Thursday expressed its confidence in the "highly deliverable" 60p cash offer, which it said values Premier at an enterprise value of roughly £1.5bn and represents a 90% premium to the pre-announcement share price of 31.5p and an implied exit multiple of 10.3 times pro forma 2015 EBITDA.

"McCormick is, however, willing to consider increasing its latest offer if justified following its confirmatory due diligence," it said, adding that it was disappointed that Premier's board was 'denying' the opportunity to consider the offer.

McCormick said it would leverage its "innovation and marketing capabilities and strong balance sheet to improve on the execution of Premier Foods' strategy" and grow Premier's presence in international markets and would "realize synergies to enable further investment in Premier Foods' iconic British brands to drive growth".

The $4.3bn-revenue-a-year group concluded by urging the Premier shareholders to encourage the board "to engage fully with McCormick".

Shareholder pressure

Premier's 7% shareholder Standard Life also issued a statement saying it was "dismayed" by the timing of Nissin's stake and urging the baord to fight for a higher bid.

David Cumming, head of equities at Standard Life Investments, said the Nissin purchase "does not reflect well on the Premier Foods Board’s objectivity and commitment regarding its engagement with McCormick and consequently its desire to pursue maximum value for shareholders".

"Although we believe the 60p bid indicated by McCormick is too low, we remain open to a bid at a higher level. We expect the Premier Foods board, on behalf of its shareholders, to engage with McCormick and pursue this option to the full."

Analyst MarK Brumby at Langton Capital said it suggested to him that "McCormick could and should pay more".

He noted that Premier directors had plenty of skin in the game, having bought shares in material amounts in 2014 and 2015 and that Premier "is cheap" trading including debt and pension deficit at around 1.5 times enterprise value.

"MKC’s comments confirm our view that there are synergies to be mined and new markets to be opened up. In which case how can the company expect to pay only a fraction its own EV/sales multiple in order to seal the deal."

"Hence if - and it’s a big if - a bidder could reduce costs and open up new markets for PFD products, why wouldn’t it be prepared to pay quite a lot more than the above?"