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What Was McCormick’s Revised Proposal to Acquire Premier Foods?

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McCormick’s offer to acquire Premier Foods

On March 30, McCormick & Company (MKC) announced its revised offer to acquire Premier Foods, which management believes would be a great addition to the business. The acquisition would be consistent with the company’s growth strategy by adding iconic brands to complement McCormick’s product portfolio. This acquisition would also increase the company’s current scale and presence in the UK market. It would ultimately help the company to drive growth through innovation, marketing, and expanded international distribution.

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Premier Foods is one of the leading branded food companies in the United Kingdom. It offers seasonings, gravy and stock cubes, cooking and pasta sauces, dessert mixes, and sweet treats under brand names including Oxo, Bisto, Sharwood’s, and Mr. Kipling’s. The strategic considerations for such an acquisition are mentioned in the chart above.

Revised offer

On March 30, the day after the company’s fiscal 1Q16 earnings release, McCormick announced the revised proposal to the board of Premier Foods of 65 pence in cash per Premier Foods share.

As detailed in the press release, McCormick’s revised proposal of 65 pence per Premier Foods share values Premier Foods at an enterprise value of ~£1.5 billion and represents a 106% premium to the pre-announcement Premier Foods share price of 31.5 pence and an implied exit multiple of 10.6x pro forma 2015 EBITDA (earnings before income, tax, depreciation, and amortization).

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Management’s view of the revised offer

Lawrence E. Kurzius, McCormick’s president and CEO, stated, “We believe our offer is highly attractive for Premier Foods’ shareholders and an opportunity to build value for McCormick’s shareholders. At this stage, given UK regulatory restrictions, we are limited in what we can say beyond our recent announcement. Consistent with our acquisition strategy, we will be disciplined about returns and value creation for McCormick shareholders.”

McCormick’s main competitors in the industry include General Mills (GIS), Pinnacle Foods (PF), and J&J Snack Foods (JJSF). GIS and PF have risen 9.8% and 4.7%, respectively, in 2016, but JJSF has fallen 7.2%. The Vanguard Consumer Staples ETF (VDC) and the Fidelity MSCI Consumer Staples Index ETF (FSTA) invest 0.32% and 0.24% of their respective holdings in Pinnacle Foods.

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