Premier Foods CEO Gavin Darby

You might expect news of an approach from an international food giant to be welcomed by Premier Foods’ board and its shareholders. There are few more obvious victims of the supermarket price war than Premier. So McCormick’s 60p per share approach - a premium of more than 90% - superficially looks like a no-brainer. So why did Premier so forcefully reject it?

While McCormick’s valuation represents a massive jump on Premier’s market cap, it’s less convincing when taken against Premier’s enterprise value. Enterprise value incorporates debt, which Premier still has a lot of, meaning its pre-approach enterprise value was around £1.24bn. McCormick gives Premier an enterprise value of £1.47bn - a less appealing premium of just 19%.

To get to a premium on enterprise value of 30% McCormick would need to stump up around 76p per share. Quite a leap from the initial 52p offer it mooted back in February.

The approach could also look on the cheap side if one considers that after years of hard work restructuring and retrenching, Premier is now emerging from the bruising price war and is beginning to show sales momentum. So McCormack is trying to get Premier at the bottom of its cycle and reap the benefits of its trading upturn.

The rationale that Premier needs to team up with a bigger international player to supercharge its international growth looks compelling - which is why Premier announced a wide-ranging partnership with Japan’s Nissin Foods. Unless McCormick finds significantly deeper pockets, it is hard to see how it can swoop in and claim Premier for itself.