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Major shareholder criticises Premier Foods' stake sale

Standard Life Investments feels the Premier board should have sought a higher bid from US company McCormick & Co instead of selling a stake to Japanese rival Nissin
March 24, 2016

A major Premier Foods (PFD) shareholder has hit out at the decision by its board to rebuff its would-be US acquirer McCormick & Co.

IC TIP: Buy at 51p

The UK-based company yesterday (March 23) released a statement saying it had rejected two bids from McCormick, one at 52p a share and another at 60p a share in recent weeks, and would be entering into a sales agreement instead with Japanese company Nissin Foods.

This led to the shares jumping roughly 50 per cent, presumably because investors hoped the company might engage with McCormick to thrash out a higher bid.

But on Thursday, Premier said Nissan had bought a 17.3 per cent stake in the business, prompting the shares to fall as far as 10 per cent. The shares appear to have been bought from private equity firm Warburg Pincus, which previously held an equal-sized stake.

David Cumming, head of equities at Standard Life Investments (SLI), said he noted the timing of Nissin's purchase with "some dismay".

"In our view, this does not reflect well on the Premier Foods board’s objectivity and commitment regarding its engagement with McCormick and consequently its desire to pursue maximum value for shareholders," Mr Cumming said.

“Although we believe the 60p bid indicated by McCormick is too low, we remain open to a bid at a higher level. We expect the Premier Foods board, on behalf of its shareholders, to engage with McCormick and pursue this option to the full.”

SLI holds roughly 7 per cent of Premier Foods' issued shares, which includes a 4.2 per cent weighting in Mr Cummings' £33m UK Equity Recovery fund.

David Beever, chairman of Premier, said in the company's announcement that the company had gained a "strategic investor who understands and supports our growth ambitions".

"We have an exceptional opportunity to deliver shareholder value," he said. "Based on the conditional cooperation agreement we announced yesterday, we very much look forward to working with Nissin to develop ways our two businesses can co-operate to drive growth."

Premier added if McCormick or another potential acquirer came forward it would "give such offer careful consideration". McCormick has until April 20 to announce a firm intention to make an offer.