Sector News

Premier Foods may sell brands to calm shareholders

July 23, 2018
Food & Drink

Premier Foods said “nothing is off the table”, including a sale of parts of the business, before a showdown with activist investors who are trying to oust the chief executive, Gavin Darby.

The group behind Mr Kipling and Batchelors conceded it must accelerate its turnaround plans amid pressure from its second largest shareholder, Oasis Management.

Darby is facing a potential shareholder rebellion led by the Hong Kong hedge fund, which is attempting to eject him at Premier’s AGM on Wednesday.

Speaking beforehand, he said the public row might help Premier find potential buyers for some brands, which include household names such as Angel Delight and Bisto.

“The benefit of this process is there can’t be a single investment banker or food company that is not aware that if the price is right the board would look at an asset sale,” Darby said.

Oasis, which last week doubled its stake in the company to 17.3%, accuses Darby, a former Coca-Cola and Vodafone executive, of “persistent value destruction” during his five-year tenure. It claims Premier is in a “zombie-like state” because of his failure to drive growth.

Paulson & Co, which controls a 6% stake in Premier, has sided with Oasis but the top shareholder Nissin Foods, which owns a 20% stake, is backing Darby.

Oasis wants Premier to sell Batchelors, the Cup a Soup, noodles and pasta sauces brand, which it says could raise £200m to pay down the group’s heavy debts.

Premier has £496m in net debt – more than three times its underlying profits – as well as £4.5bn of pension liabilities, despite a market value of only £390m.

On Wednesday, Premier said it was on track to meet profit expectations as it revealed a 1.7% rise in sales in the three months to 30 June. Sales of Mr Kipling cakes rose 14% in the UK after the company launched a new ad campaign and Batchelors sales were also up.

Overall, branded groceries sales fell, led by Loyd Grossman sauces, which were down because of a change in promotional activity. Unbranded “sweet treat” sales were also down as the group lost two contracts with retailers.

Premier’s share price has dropped more than 20% since the American flavouring manufacturer McCormick walked away from a bid in 2016. The company also issued a profits warning in January last year.

The Premier chairman, Keith Hamill, said the company had discussed in vain a sale of Batchelors early this year with Nissin Foods, the Japanese noodle maker.

“It was looked at. It didn’t happen,” Hamill said, adding that the company would only sell assets at an “exceptional price” that would enable the firm to pay off debts and invest for the future, as that was what most shareholders wanted. However, he said: “I don’t think anything is off the table.”

Hamill said: “Activist investors are normally addressing a fat, lazy company and persuading it to take action. On average that does tend to produce a better performance. We are in fact a thin, hardworking company. However, all these things contribute to the way management and board think and does help focus concentration of all those involved on critical issues.

“Challenge is not a terrible thing. We’ll probably get some benefit from it … We know that we need to find ways to accelerate the turnaround and what we have to say to shareholders is that that we are working at it.”

Premier Foods’ board has backed Darby, who since joining in 2013 has halved a near £1bn debt, stepped up the pace of new product development, doubled international revenues and signed lucrative agreements with Mondelēz, the American foods group, and Nissin.

Darby said: “Premier has come an awful long way in a pretty torrid challenging environment.

“Of course I would like the share price to be higher. I am convinced it will be if we continue doing the things we are doing and I have invested personally in that expectation.”

By Sarah Butler

Source: The Guardian

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