Gavin Darby

Premier plans to use its partnership with Nissin Foods to supercharge its NPD and win over sceptical investors after US food group McCormick walked away from bid talks this week.

McCormick announced on Wednesday it “would not be able to propose a price that would be recommended” by the Premier board after it was given access to the UK supplier’s books.

Premier’s shares crashed by more than 30% and a number of investors voiced their frustration again at how the board handled McCormick’s pursuit after the US food group walked away.

However, an undaunted Premier insisted it had a “strong future” as an independent company. Even before McCormick walked away it had met key shareholders to outline its case for a partnership with Nissin Foods rather than submitting to an acquisition.

Over the past week Premier presented a bid defence document to its 20 largest shareholders outlining how the cooperation agreement with Nissin Foods could boost growth over and above the 2%-4% figure that under pressure CEO Gavin Darby had already provided in the upgrade he provided from its previous 1%-2% guidance.

The document describes how Premier could leverage Nissin’s R&D and existing patents to reformulate and relaunch a host of its own-product lines.

It points out that Nissin has registered over 200 patents in respect of Noodle technology alone in the past five years, including creating instant microwavable noodles that do not require draining, and laser perforation technology to create thicker noodles and multi-layered noodles, allowing different flavours and textures within the same product.

The document suggests extensions of its Batchelors Super Noodles range, including the potential launch of Super Noodles XL, an upgrade of Batchelors Cup a Soup using low-fat powdered soup patent which offers a conventional soup mouth-feel, and a method of freeze-drying meat that could refresh its Deli Box and Pasta’n’Sauce ranges.

Premier could also co-brand Nissin’s pot snacks and other noodle bowl and cup products and distribute Nissin-branded products in the UK as well as accessing more export markets.

With McCormick’s interest over, Nissin is now free to take up a seat on the Premier board having built a 19.9% stake in the business over the past two weeks. Nissin is prevented from making a full takeover approach for six months unless another bidder emerges.

This Nissin-driven growth would be in addition to the new strategic initiatives, such as increasing its presence in the food to go and chilled sectors that will grow revenues by 2-4% per year.

“The board sees a strong future for an independent Premier Foods, and believes the foundations have been laid for significant growth and shareholder value creation,” Premier stated in response to McCormick’s withdrawal from talks.

Premier investors Paulson & Co and Mole Valley Asset criticised subsequently the Premier board for its handling of the McCormick saga and expressed disappointed a deal was not reached.

But Premier sources pointed out that despite this week’s share price fall, the shares remain more than 30% higher than the 31.5p it was trading at before the announcement of the Nissin partnership and new growth strategy.

Langton analyst Mark Brumby said short-term share price weakness was “unavoidable” given recent investor criticism of the board. But he added: “The last month has been a defining point between eras. One month ago Premier was a friendless, highly indebted and an un-investable basket case. Now it has had bid approaches, has a supportive shareholder (at 63p) and could grow at double (more including Nissin) the rate previously asserted.”

McCormick sources suggested there was nothing particular in the Premier books or pension documentation that caused specific alarm and its decision to walk away was entirely down to valuation matters.

City observers had expected McCormick to have to increase its 65p per share proposal to at least 70p per share to tempt the Premier board.

Darby told analysts there had been no price negotiation after McCormick’s due diligence.