US food group McCormick has walked away from its pursuit of Premier Foods (PFD) after examining the Mr Kipling and Bisto maker’s books.
Premier’s shares have crashed more than 30% this morning back to 39.5p as the City reacts to McCormick’s announcement it has withdrawn its 65p per share proposal to buy the UK food group.
McCormick said in a statement this morning that it does not intend to make an offer after completing its due diligence review, which it stressed was conducted with the management of Premier Foods “in an open and collaborative spirit”.
“McCormick has, after careful consideration, concluded that it would not be able to propose a price that would be recommended by the board of Premier Foods while also delivering appropriate returns for McCormick shareholders,” the group said.
Premier has previously turned down offers of 57p, 60p and 65p from McCormick before letting the US suitor take a look at its books, including its pension obligations.
City observers had expected McCormick to have to increase its bid to at least 70p per share to tempt the Premier board.
Premier said in a separate statement that it saw a “strong future” for an independent Premier Foods, with the foundations having been “laid for significant growth and shareholder value creation”.
Rather than being acquired by McCormick, Premier will instead press on with its co-operation agreement with Japanese noodle-maker Nissin Foods.
The agreement will see Premier’s products sold internationally through Nissin, Premier bringing some of Nissin’s range to the UK and a sharing of product R&D.
Premier stated: “The board also considers that the company’s longer-term prospects will be enhanced by the co-operation agreement it has signed with Nissin Foods, which will expand Premier Foods’ range of growth opportunities.”
Nissin has spent over £100m building a 20% stake in Premier since the announcement of the co-operation agreement. Under the terms of the agreement Nissin will not make any takeover bid for Premier for six months.
Premier CEO Gavin Darby told analysts this morning that there had been no price negotiation after McCormick’s due diligence.
Broker Societe Generale said this morning: ”Pre the bid, the shares traded at 32p. We suspect the shares could fall back close to this level, although some may think that Nissin may consider its options, which whilst not impossible isn’t our base case.”
Earlier in the bid process the Premier board was criticised by key shareholders Paulson & Co and Standard Life Investments for pushing through the Nissin agreement rather than consulting shareholders of McCormick’s proposal.
“There will be some very unhappy shareholders this morning,” SocGen added.