Premier Foods spurns spicy McCormick bid, proposes noodle tie-up

Shares in Premier Foods rose 44% to just shy of a year's high as it revealed it had rejected a takeover approach from US herbs and spices giant McCormick & Company and instead proposed a tie-up with Japanese noodle group Nissan Foods.

Although McCormick made a 60p-per-share offer, almost double Premier's recent price, the London-listed company said it was rejecting the "unsolicited, non-binding and highly conditional approach"… "on the basis that it significantly undervalues the company and its prospects".

Although January's third-quarter update showed disappointing sales over the festive period, Premier, which owns brands such as Mr Kipling cakes, Oxo stock cubes, Ambrosia creamed rice and Bisto gravy, said the McCormick offer represented an insufficient premium to Premier's enterprise value.

Squeezed by the cut-throat UK grocery market and investors concerns about its considerable debt ratios and pension responsibilities, Premier's shares have decayed more than 80% from around 180p in the last two years, but chairman David Beever gave an impassioned plea about the group's potential.

"McCormick's proposal represents an attempt to capture the upside value embedded in Premier's business that rightfully belongs to Premier's shareholders," he said. "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.

Beever and the board have agreed, subject to no longer being subject to being in an offer period, to enter into a cooperation agreement with Nissin where the Japanese giant would share intellectual property, distribute Premier's products internationally, and supply Nissin's products and formats under Premier's Batchelors brand in the UK.

Premier also revealed a larger than expected share of losses from 49% owned breadmaker Hovis of £18m, having pencilled in a £7m loss for the first half of the year. It will also now fully write off its remaining investment in Hovis of approximately £8m.

The company said it will also buy out the 51% interest in its joint venture for powdered beverages and desserts business Knighton Foods for a minor consideration before the end of the current financial year, which will increase Premier's reported sales for 2016/17 by approximately £35m but is expected to have a broadly neutral impact on EBITDA.

On acquiring such, Premier would be obliged to consolidate Knighton's net debt of approximately £11m which is currently financed by a third-party asset backed lending programme before seeking to refinance this facility and revaluing its investment in Knighton for another £10m one-off charge.