John Paulson (Trades, Portfolio) has come out against Premier Foods, in which he owns a 7% stake, selling part of the company instead of taking a buyout offer.
Premier Foods (LSE:PFD, Financial), a small-cap British food manufacturer, signed a cooperation agreement with Nissin Foods Holding Co. Tuesday and agreed to sell it 17.3% of Premier’s shares. Nissin, inventor of the instant noodle and owner of brands like Top Ramen, acquired the shares from an existing stakeholder.
Under the terms of the agreement, Nissin gains the right to appoint one member to Premier’s board of directors. It also prevents Nissin from making an offer for the whole company for six months, though it can purchase more shares.
Through their strategic partnership, Premier gains the ability to distribute Nissin’s products in the UK, distribute its products overseas and share intellectual property and expertise.
But Paulson, who owns 63,390,111 shares of Premier, believes the board was unfair to other shareholders by allowing Nissin to purchase shares from one shareholder at a significant premium that they were not offered. Nissin (TSE:2897, Financial) paid 63 pence per share, versus Premier’s trading price of 51 pence on Thursday.
The sell was “also to the detriment of other bidders who could be discouraged by Nissin Foods’ 17.3% stake,” Paulson said in a statement.
Instead, Paulson urged Premier's chairman Wednesday to entertain an acquisition offer from McCormick & Company Inc. (MKC, Financial), or to solicit other offers from Nissin or any company.
Paulson and Premier disagreed about whether McCormick offered a fair price for the company. Premier initially rejected its bid in February for 52 pence per share and rejected another in March 60 for pence per share.
“The proposal fails to recognise the value of Premier’s performance to date and prospects for the future, including the strategic plans we have to accelerate growth,” Premier Chairman David Beever said Wednesday. “McCormick's proposal significantly undervalues the business.”
Paulson, however, said that the company’s largest shareholder selling its stake to Nissin at 63 pence per share made McCormick’s offer of 60 pence per share worth discussing.
“Refusing to engage is also detrimental to employees and pensioners,” Paulson said. “McCormick, an extremely successful US food company, has a market value of $12 billion compared to Premier Foods' market value of $650 million and has far greater resources to safeguard future pension obligations on behalf of employees.”
Premier then issued a statement Thursday saying it would consider a higher offer that came closer to the board’s estimate of underlying value from McCormick or any company.
Although Premier as an overseas company does not appear in Paulson’s quarterly filings, he has likely held shares since at least 2010, according to media reports. Since 2012, its shares have dropped 47% on the London Stock Exchange to close Friday at 52 pence per share.
GuruFocus financial data for Premier show it has a five-year average revenue decline rate of 31.6% and a book value of 86 pence per share as of Sept. 31. Premier also has cash on hand of $21.5 million and debt totaling $589 million. It trades with a P/S ratio near a one-year low at 0.07 and P/B ratio of 0.61.
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