13th Apr 2016 09:40
LONDON (Alliance News) - Premier Foods PLC gave up the takeover premium which had been baked into its shares on Wednesday, after US spices and flavourings company McCormick & Co Inc said it had decided against making a takeover offer.
Shares in Premier Foods, which owns the Bisto gravy and Mr Kipling cakes brands, plunged 26% to 41.92 pence following McCormick's withdrawal, giving up gains racked up in recent weeks thanks to the takeover interest.
McCormick had tabled a 65.00 pence per share offer for Premier Foods at the end of March after Premier Foods had rejected two other offers from the US company, the owner of Schwartz herbs and spices. The deal valued Premier at GBP536.7 million, compared to its market capitalisation after Wednesday's slide of GBP343.5 million.
Premier then faced pressure from shareholders to enter into talks with McCormick and relented after the higher offer had been made.
Premier said last week the talks with McCormick had been "constructive", but on Wednesday McCormick said it would not be making an offer for Premier.
"McCormick has, after careful consideration, concluded that it would not be able to propose a price that would be recommended by the board of Premier Foods, while also delivering appropriate returns for McCormick shareholders," the US company said.
Premier Foods confirmed McCormick's withdrawal and said it appreciated the "open and constructive spirit" in which the talks were conducted.
Premier said it sees a strong future for itself as an independent company and added it believes "the foundations have been laid for significant growth and shareholder value creation."
McCormick had initially expressed an interest in Premier Foods in February and made two bids for the company which Premier quickly rejected, claiming they undervalued the company.
Between these two bid rejections and McCormick coming back with a higher offer, Premier announced the purchase of a 17% stake in the business by Japan's Nissin Foods Co Ltd, the inventor of the instant noodle. Nissin bought the stake from Warburg Pincus, the private equity group, for around 63.00p per share.
This sparked a round of criticism aimed at Premier from shareholders, including Standard Life Investments and US hedge fund Paulson & Co, both of which called on Premier to engage with McCormick on its offer.
In particular, the pair questioned the engagement Premier had opened up with Nissin, in contrast to the quick rejections of McCormick's advances. Paulson said the Premier board had "created an environment where they appear to be favouring Nissin Foods" to the detriment of other shareholders.
David Cumming, head of equities at Standard Life Investments, said he noted the Nissin stake sale "with some dismay", adding the perception Premier had sided with Nissin "does not reflect well on the Premier Foods board's objectivity."
Those pressures forced Premier to enter into talks with McCormick when it made the 65.00p offer, but McCormick's withdrawal suggests the price Premier wants to achieve remains too high to justify.
Analysts suggested when the bid from McCormick emerged it would need to go closer to 70.00p per share to buy Premier, but that this could prove too high of a hurdle for the US company given Premier's high debt and big pension deficit.
By Sam Unsted; [email protected]; @SamUAtAlliance
Copyright 2016 Alliance News Limited. All Rights Reserved.
Related Shares:
Premier Foods