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English food company rejects $700 million bid from McCormick

An English food company has rejected a takeover bid from McCormick & Co. in what would be the Sparks-based spice maker's largest acquisition.

McCormick has about a month to decide whether to proceed with its roughly $700 million cash offer for Premier Foods plc, which sells a variety of cooking sauces, seasonings and cake mixes in the United Kingdom.

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Premier Foods announced Wednesday that its board had rejected McCormick's proposal as insufficient. McCormick later confirmed that it first offered 52 pence a share for Premier in February, then raised its bid to 60 pence on March 14.

Premier shares soared more than 70 percent to 53.75 pence each in London Stock Exchange trading.

"McCormick's proposal significantly undervalues the business and the board has unanimously decided to reject it," David Beever, Premier's chairman, said in a statement.

In its statement, McCormick noted that its proposal represented a 90 percent premium on Premier shares before the announcement.

"We think McCormick made a fair offer," said Brian Yarbrough, a consumer staples analyst for Edward Jones, adding that for most companies in the United States, it would be difficult to justify to shareholders turning down an offer with such a premium. "That would be a stretch in the U.S."

Headquartered in St. Albans, near London, Premier was once one of England's largest food companies but has shrunk during a restructuring. Its stock has been depressed by its roughly $825 million in debt, but the operation has remained profitable if slow-growing. Its brands include Cadbury cakes, Mr. Kipling cakes, Ambrosia frozen custard, OXO bouillon and Bisto gravy.

"McCormick believes that an all-cash offer at this level should be well received by Premier Foods' shareholders, employees, pensioners and other stakeholders, and would provide Premier Foods' shareholders with an attractive premium combined with the certainty of cash value now," it said in its statement.

The acquisition would complement McCormick's longtime presence and market penetration in the United Kingdom and help Premier grow in international markets, it said.

Shares of McCormick rose nearly 2 percent Wednesday to close at $95.84 on the New York Stock Exchange.

The acquisition would be the largest in a long string of acquisitions for McCormick, which has sought to supplement the slow growth in its core spice business with deals expanding its product and geographic reach. Most recently, it bought the Texas-based maker of Stubb's barbecue sauces for $100 million.

Its largest deal in the past decade came in 2008 when it acquired the Lawry's seasoning business from Unilever plc for $605 million.

The bid for Premier is consistent with McCormick's strategy of acquiring companies with strong market share, good brands and good leadership teams, which the flavorings company typically leaves in place, said Karyl Leggio, a finance professor at Loyola University Maryland.

"It's a very effective strategy for acquisitions," Leggio said.

McCormick's new CEO, Lawrence Kurzius, has said he plans to aggressively pursue companies in either the spice and flavorings business or adjacent categories.

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Premier's focus on sweet foods such as cake mixes and custards would be a new area for McCormick, Yarbrough said.

It's likely Premier is scouting for another bid, Leggio said.

"They're looking to start a bidding war," she said. "But it's not historically McCormick's style to get into a bidding war with another company. ... My guess is if the price is too high, they'll walk away."

Perhaps in an effort to hold off McCormick, Premier Foods also announced Wednesday that it would cooperate formally with Japanese instant noodle maker Nissin Foods Holdings Co. Ltd. to share products, distribution and "know-how."

The agreement foresees Nissin's taking a stake in Premier, but Nissin agreed to not bid to buy its English partner for at least six months.

"This is an exceptional opportunity for us to gain a major strategic partner which understands our business and supports our growth ambitions," said Gavin Darby, Premier's CEO, in a statement. "We look forward to working with Nissin to explore ways our two businesses can co-operate to better serve both our customers and our shareholders."

Under British law, McCormick is required to announce by April 20 whether it plans to proceed with attempting to take over Premier Foods. McCormick said it would finance any transaction from existing resources and new debt offerings.

Yarbrough said it will be interesting to see how much higher McCormick would be willing to go.

"They've been very diligent and good about prices paid," he said.

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Recent McCormick & Co. acquisitions

August 2015 — One World Foods, the Texas-based maker of Stubb's barbecue sauce, for $100 million

March 2015 — Brand Aromatics, a New Jersey-based maker of marinades and broths, for about $63 million.

February 2015 — Drogheria & Alimentari, an Italian spice-maker, for $97 million.

May 2013 — Wuhan Asia-Pacific Condiments Co., a popular bouillon maker in China, for $141 million.

2011 — Kamis SA, a Polish spice and condiment maker, for $291 million

2011 — Ohio-based stock maker Kitchen Basics for $38 million.

2008 — Lawry's seasonings business from Unilever for $605 million.

2008 — Billy Bee Honey Products Ltd., Canada's largest honey company, for $75 million.

2006 — Epicurean International, a San Francisco-based importer of Asian foods, for $97 million.

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