Advertisement

UK's Premier Foods agrees to talks after McCormick's latest bid

McCormick & Co. is trying to pull off its largest acquisition ever and expand its global footprint, extending a $2.2 billion takeover proposal on Wednesday for a British company that makes cake mixes, gravy and rice pudding.

The Sparks-based spice maker has been rebuffed twice by Premier Foods, but under pressure from shareholders, the U.K. food manufacturer indicated it would be willing to discuss the latest offer, which includes Premier debt.

Advertisement

McCormick executives met with hundreds of shareholders for its annual meeting at the Valley Mansion conference center in Cockeysville on Wednesday, but much of the action with its takeover bid occurred offstage. While executives discussed the benefits of the acquisition, they declined to discuss the proposal in detail, citing regulatory restrictions.

"We believe that our offer will be well received," said Lawrence E. Kurzius, McCormick's president and CEO. "It is really a fast-breaking thing."

McCormick, which has about 10,000 full-time employees worldwide, has used many of its recent acquisitions to expand internationally, buying firms in Italy, Poland and China. A new manufacturing plant is underway in Dubai. In 2015, 43 percent of McCormick's sales were in foreign countries.

Kurzius said the interest in Premier is consistent with an acquisition strategy focused on expanding its flavor profile and building scale in its existing markets. McCormick executives made a point of telling shareholders Wednesday that the firm is not solely focused on the British company and that it would continue to look at other possibilities, both large and small.

"Premier Foods is just one idea in McCormick's robust acquisition pipeline," executive chairman Alan D. Wilson said.

McCormick has until April 20 to make a firm offer for Premier. The company's third offer amounts to 65 pence (94 cents) a share, or $774 million, up from previous bids of 52 pence per share and 60 pence per share.

Premier, which has brands that include Cadbury Cakes and makes rice puddings, barbecue sauce, bouillon cubes, bake mixes and more, maintained Wednesday that McCormick's offer is not high enough.

But the firm's shareholders have pushed it to consider a deal, and the company agreed to share financial information, including its pension obligations, with McCormick. That news reached McCormick executives just before the start of the annual meeting, which regularly draws hundreds of shareholders.

Mark Timbie, 61, who retired from McCormick in 2013 as president of consumer foods Americas and chief administrative officer, was one of those shareholders. He said he trusts McCormick leaders to handle the deal well.

"I think it could be great if it can be done," he said. "If not, there are other opportunities."

Erin Lash, a senior equity analyst at Morningstar Inc., said the size of the Premier acquisition would make it potentially "transformative" for McCormick.

But a deal is far from certain.

Premier has debt and pension obligations, which may limit McCormick's appetite to bid higher. There is also the possibility of a bidding war, if Japan's Nissin Foods Group, known for its ramen noodle cups, enters the fight, she said.

Nissin last week took a 17.2 percent stake in Premier at a price of 63 pence per share, giving it control of nearly 20 percent of the company, according to a Wednesday filing.

Advertisement

Adding Premier's products to McCormick's portfolio would double down on the company's presence in Britain, where it has a regional headquarters, allowing it to expand distribution there.

But some analysts said it would be a departure from McCormick's core spice business in a slow-growing market.

"While the financial benefit of such a transaction is clear, the strategic implications are somewhat concerning and cause us to question the rationale for the acquisition," Stifel analyst Chris Growe wrote in a research note.

Other analysts said McCormick has taken a disciplined approach to previous deals and they expect that to continue — even though its latest offer is nearly double what Premier's share price was when McCormick's interest became public last week.

"I would trust their judgment because I think they have been very successful in their acquisitions to date," said Karyl B. Leggio, professor of finance at Loyola University Maryland's Sellinger School of Business. "You hit a point where if you're going to continue to grow, you often need to extend your reach a bit."

McCormick's latest proposal now exceeds what Nissin paid, she added.

"At least McCormick is closer to the range that Premier is seeking," she said. "It's closer to happening but still is not a sure thing."

McCormick made its first offer to Premier in February and had hoped to keep discussions under wraps, Kurzius said. After Premier publicly rejected its second bid on March 23, the negotiations came to light.

"Normally these kinds of discussions, as we do it, never see the light of day until we've got an agreement," Kurzius said. " We were a bit surprised about the announcement."

The prospect of a deal comes as McCormick's stock has climbed steadily in the last year, at some points surging above $100 per share Tuesday and Wednesday after the firm reported better-than- expected sales.

On Wednesday, McCormick's stock held steady at $99.75, up about 16 cents or less than 1 percent. Premier closed at 59 pence per share, up more than 4 percent.

McCormick said a strong dollar dragged down its profits in 2015 and is expected to do so again, though to a lesser degree. But the U.S. consumer market has perked up, and even with a slowing economy in China — the company's second-largest sales market after the U.S. — growth remains strong, Kurzius said.

"China certainly has slowed down, but from our perspective it's slowed from 12 percent a year to 6 percent a year," he said. "That's a pretty high-class problem."

Kurzius said McCormick is well positioned to take advantage of several trends, including shoppers increasingly focused on healthy cooking and quality ingredients. One of the firm's new products, included in a shareholder goodie bag, is a grinder designed to offer stronger flavor than traditional dried herbs, but last longer than fresh ones.

"Flavor is on trend," Kurzius said. "It's always on trend."

But Wilson told at least one inquiring shareholder that there's one new flavor that McCormick is not considering — marijuana.

"That's a good point, but no, we have not," he said to laughter. "Thank you."

Advertisement
Advertisement