Japanese noodle giant takes stake in Premier Foods, rival suitor fights back

On Wednesday, Premier revealed it had rejected a 60p-a-share offer from US spice maker McCormick and was looking to form a partnership with Nissin.

On Thursday, Premier chairman David Beever welcomed Nissin as a new "long-term shareholder".

"By gaining a strategic investor who understands and supports our growth ambitions, we have an exceptional opportunity to deliver shareholder value. Based on the conditional cooperation agreement we announced yesterday, we very much look forward to working with Nissin to develop ways our two businesses can co-operate to drive growth."

Premier said it and Nissin were seeking to finalise a formal relationship agreement once the share acquisition is completed and once the McCormick offer period expires.

As part of that agreement, it is expected that Nissin will appoint a non-executive director to the Premier's board.

McCormick appeal

McCormick, which is now subject to a put-up-or-shut-up deadline of 1700 BST on 20 April, came back later on Thursday with a statement that urged Premier's shareholders to encourage the board "to engage fully", with the tempter that it was "willing to consider increasing its latest offer if justified following its confirmatory due diligence".

The Baltimore, Maryland group said the 60p cash offer 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 said a combination would allow it to leverage its "innovation and marketing capabilities and strong balance sheet to improve on the execution of Premier Foods' strategy", grow Premier's presence in international markets and "realize synergies to enable further investment in Premier Foods' iconic British brands to drive growth".

Premier's 7% shareholder Standard Life publicly came out as the first to urge the Premier board to engage and fight for a higher bid, also saying it was "dismayed" by the timing of Nissin's stake.

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?"

Shares in Premier closed the week at 52p, down 3.3% on the day and up 66% since the start of the week.