Premier today (March 23) said two approaches by McCormick had “significantly undervalued” the company and its growth prospects, and had been unanimously rejected by the Premier board.
The company also announced new growth initiatives including expanding its cake business in the US and in the convenience channel.
The first approach from McCormick, in February, suggested a price of £0.52 ($0.74) in cash per share. The second, which was made last week, was £0.60 ($0.85) per share.
News brings hike in share price
Premier shares have been priced around £0.32 ($0.45) for the past month – but have risen sharply on today’s news. Premier said although the McCormick approaches had been above the share price, they represented an insufficient premium that did not fairly reflect the benefit to McCormick of gaining control of the business.
McCormick has until April 20 to make an offer for the business, and Premier told shareholders they are “strongly advised to take no action in respect of the proposal”.
"McCormick's proposal represents an attempt to capture the upside value embedded in Premier's business that rightfully belongs to Premier's shareholders,” said Premier Foods chairman David Beever. “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.”
Investing in biggest brands
Premier today said it had been investing in some of its biggest brands - such as Mr Kipling cakes and Cadbury cakes produced under license from Mondelēz International – more than doubling its rate of product innovation since 2014 and increasing marketing spend from £25m ($35m) in 2013/14 to £36m ($51m) in 2015/16. The company plans to extend this strategy to other brands to deliver further growth.
It also announced new initiatives including accelerating growth in its cakes brand in the convenience channel by capitalizing on manufacturing investments and innovation. This follows the trial of the Cake-To-Go range of Mr Kipling twin-pack slices and Cadbury mini roll twin-packs
Overseas expansion
Another focus will be accelerating the expansion of cake brands in the US and other geographies. This site has previously reported that Premier had doubled Mr Kipling sales in Australia in 2015, and had taken the brand into The Czech Republic, Slovakia and Poland at the end of last year.
The company added it plans to extend its grocery brands – such as Bisto gravy and Oxo stocks - into premium parts of the chilled grocery sector.
In a trading update, Premier said it expected to write off its remaining investment in bakery business Hovis Limited, with its losses in the businesses set to be around £18m ($26m).
Like other mainstream UK bread brands, Hovis has been hit hard by fierce price competition in grocery and the consumer shift away from standard bread. Sales of Hovis branded bread fell 18% last year to £62m ($86m) [IRI 52w/e 2 Jan 2016].
Hovis Limited – a joint venture with The Gores Group (which owns 51%) and Premier (49%) – operates nine bakeries, six flour mills and two regional distribution centers across the UK. The business also makes own-label bakery products as well as the Mothers Pride and Ormo brands.
Premier to partner with Nissin
Also announced today was a new strategic tie-up between Premier and global noodle giant Nissin.
Premier said the deal arrangement would give it access to Nissin's products and formats to distribute in the UK market under either Nissin's or Premier's brands; enable Premier to benefit from Nissin's international scale to accelerate overseas distribution; and share Nissin’s innovation and technical know-how to develop new products. Premier already
The company is also considering the possibility of Nissin acquiring a stake in the business.
"This is an exceptional opportunity for us to gain a major strategic partner which understands our business and supports our growth ambitions,” said Premier chief executive Gavin Darby. “We look forward to working with Nissin to explore ways our two businesses can cooperate to better serve both our customers and our shareholders."
Nissin, which launched the world's first instant noodles in 1958, has annual revenues of around $3.8bn and operates in 19 different countries.