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McCormick & Co. (MKC)

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Premier Foods agrees to talk after McCormick ups takeover offer to 1.5bn

30 Mar 16

LONDON (ShareCast) - (ShareCast News) - Premier Foods has agreed to enter talks with spices giant McCormick after the US company upped its offer from 60p to 65p per share, valuing the Mr Kipling to Oxo Cubes group at 1.5bn.
McCormick said in a statement on Wednesday morning that the offer was conditional on being able to review Premier's pensions documentation, current trading and material contracts.

Responding in the afternoon, Premier bowed to pressure from major shareholders and said it was prepared to discuss "value drivers, a review of material pensions documentation, current trading and material contracts" in order to see if McCormick will increase its offer price to a recommendable level, as it continued to believe the new offer undervalued Premier and its prospects.

"It will also be important for McCormick to demonstrate to the board that any revised proposal is deliverable," Premier said, adding that it had "informed McCormick that it will be expected to provide an improved proposal following these meetings".

Last week, the London-listed ingredients and branded food maker revealed it had rejected offers at 52p and 60p from the US company as they were felt to "significantly" undervalue its potential.

But McCormick, which has a presence in the UK via its Schwartz brand, indicated that if the UK company's board engaged in talks it could lead to a recommended offer.

Major Premier shareholders Standard Life and Paulson last week publicly urged the board to enter talks.

Complicating matters somewhat is the 17.3% stake in Premier taken by Japanese noodle giant Nissin last week from long-term shareholder Warburg Pincus, a move that was described by chairman David Beever as bringing on a "strategic investor who understands and supports our growth ambitions".

But on Friday, 7% shareholder Paulson said the fact that Warburg sold all their shares at 63p, "shows that the 60p offer from McCormick should be worthy of engagement".

The new 65p offer from Baltimore-based McCormick represents an 8.3% premium to the previously announced proposal of 60p and a 25% premium to the 52p initial approach, but some way from the 160p level last seen in 2014.

Broker Shore Capital noted that, accounting for its high debt and pension fund deficit, the deal valued Premier's equity at 537m and represented 7.7 times March 2017's forecast earnings.

"We see 65p as a good compromise price, allowing Premier's management to highlight the extra value it has extracted from McCormick, whilst also offering shareholder's the opportunity of a cash exit today at a reasonably full EBITDA valuation rather than waiting for the chance of a higher price through operational improvement highlighted by the company in its statement to the market last week, which is not without risk," wrote analyst Darren Shirley.

Note 1: Prices and trades are provided by Digital Look Corporate Solutions and are end of day values only.


Market Data

Currency US Dollars
52 Week High $173.52
52 Week Low $121.78
Shares Issued 122.46m
Market Cap $21,127m


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