Spice maker McCormick Foods has given up its courtship of Premier Foods after the U.K. cake company spurned a $2.1 billion takeover offer.
Premier’s stock price had nearly doubled from 31.50 pence a share when McCormick’s interest was revealed last month. But on news Premier had rejected the 65 pence-per-share offer, the shares closed Wednesday at 41.75 pence, down 27%.
“McCormick has, after careful consideration, concluded that it would not be able to propose a price that would be recommended by the board of Premier Foods while also delivering appropriate returns for McCormick shareholders,” the company said in a news release.
Sources close to the situation told Reuters the main obstacle that led to the collapse of negotiations was price.
Premier makes such popular British brands as Mr Kipling cakes and Bisto gravy. Its second-largest shareholder, hedge fund Paulson & Co, criticized the board for rejecting McCormick’s overture, which was an improvement on earlier proposals of 52 pence and a second of 60 pence.
“Extremely disappointing that the board could not recommend an offer at a 106% premium to the pre-announcement price,” a Paulson spokesman told Reuters.
But Premier stood by its standalone strategy. “We have been meeting our shareholders and the majority recognize that we have strong growth plans to go forward,” Premier Chairman David Beever told The Financial Times.
Those plans include growing overseas sales through a partnership with Japanese noodle maker Nissin Foods, which now has a 19.9% stake in Premier.
In rejecting McCormick’s offer, Premier raised its medium-term annual sales target to 2 to 4% from 1 to 2%, citing the Nissin deal as well as new plans to sell its cakes in more convenience stores and expand its brands into more premium chilled categories.
“The share price today is telling you that people think the more realistic growth targets are achievable and people buy into that, and that the share price isn’t going to go back to where it was before,” Davy Research analyst Declan Morrissey said.