By Martinne Geller and Vidya L Nathan
LONDON (Reuters) - Britain's Premier Foods (L:PFD) agreed on Wednesday to hold talks with McCormick & Co (N: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 per share and instead agreed to an international cooperation deal with Japanese noodle maker Nissin (T:2897), sparking criticism from some Premier investors.
The new proposal values Premier's equity at 537 million pounds. Including debt and future pension liabilities, McCormick said it represented an enterprise value of 1.51 billion pounds.
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 (O: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 were up 6 percent at 1400 GMT, 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.
In addition, Nissin bought 17.3 percent of the company from private equity firm Warburg Pincus for 63 pence per share, becoming its largest shareholder.
Premier's prior refusal to enter talks with McCormick led some of its major shareholders, including Paulson & Co and Standard Life (LON:SL) Investments, to criticise the board.
McCormick has until April 20 to make a firm offer under British takeover rules.$1 = 0.6947 pounds)