Premier Foods agrees to meet McCormick after improved offer

By Martinne Geller and Vidya L Nathan

LONDON (Reuters) - Britain's Premier Foods (NYSE: PFD) agreed on Wednesday to hold talks with McCormick & Co (NYSE: MKC) after the U.S. company raised its takeover proposal for a second time, pushing for a deal that would boost its stable of kitchen cupboard brands.

McCormick raised its takeover proposal to 65 pence per share, aiming to break a stalemate after Premier refused its prior offers of 52 and 60 pence and instead agreed to an international cooperation deal with Japanese noodle maker Nissin <2897.T>, sparking criticism from some Premier investors.

Nissin raised its stake in Premier to 19.9 percent, according to a regulatory filing on Wednesday, from 17.3 percent that it bought last week from private equity firm Warburg Pincus for 63 pence per share to become Premier's largest shareholder.

The new proposal from McCormick values Premier's equity at 537 million pounds ($774 million). McCormick said the proposal represented an enterprise value of 1.51 billion pounds including debt and future pension liabilities.

Premier said the proposal was still too low, but it was prepared for meetings to provide McCormick with the limited financial information it is seeking, to establish whether the U.S. firm would increase its offer to "a recommendable level".

A combination would marry well-known British brands such as Mr Kipling cakes, Bisto gravies and Oxo seasonings with McCormick's spices, Lawry's seasonings and Thai Kitchen meals.

While many of the brands are complementary, the merger would also likely aim to boost profits by streamlining, a strategy at work in last year's creation of Kraft Heinz Co (NASDAQ: KHC) and becoming increasingly important amid a global slowdown in sales of packaged foods as consumers seek fresher, healthier options.

"GOOD COMPROMISE"

Shore Capital analysts urged Premier shareholders to accept the revised proposal, which is a little over double the stock's closing price on March 23, before the approach was made public.

"We see 65p as a good compromise price, allowing Premier's management to highlight the extra value it has extracted from McCormick, whilst also offering shareholders the opportunity of a cash exit today at a reasonably full EBITDA (core earnings) valuation," they said in a research note.

Premier's shares, which closed 4.4 percent higher at 60.25 pence on Wednesday, have been depressed by a large debt load and pension liabilities left over from an acquisition spree.

Chief Executive Gavin Darby has been working on a turnaround that has included selling assets and refinancing debt. Last week, Premier said it was working on a wider roll-out of its snack cakes, expanding some of its shelf-stable brands into higher-margin chilled categories and a cooperation deal with Japan's Nissin, which would extend its reach abroad.

Premier's prior refusal to enter talks with McCormick led some of its major shareholders, including Paulson & Co and Standard Life Investments, to criticize the board.

McCormick has until April 20 to make a firm offer under British takeover rules.

($1 = 0.70 pounds)

(Additional reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Sunil Nair, Mark Potter and Kirti Pandey)

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