The scrap at Premier Foods, owner of Mr Kipling cakes, Angel Delight and Bisto gravy, is turning into a mini classic. On one side, there is an angry Hong Kong hedge fund, Oasis, that wants to oust Premier’s chief executive; it calls Gavin Darby overpaid and accuses him of overseeing five years of failure at a “zombie-like” company.
On the other side, the board argues there are no quick fixes and has rolled out two retailing lords to heap praise on Darby. Lord MacLaurin, who established Tesco as a force in the land in the 1980s and 1990s, called his achievements “hugely impressive”. Lord Price, who was in charge of Waitrose for a decade, said the activist risks “destroying significant value, rather than creating it” if it succeeds.
Who to believe? Well, one can understand why Oasis may receive a sympathetic hearing from other shareholders. A glance at the share price would cause most investors to splutter on their French Fancies. The company is worth slightly less today than the £353m it raised from investors in a rights issue in 2014. It is also carrying borrowings of £530m and has a deficit of £437m in one of its pension funds (the other fund, thankfully, is in significant surplus).
The only brief excitement came in 2016 when US spice maker McCormick almost made a bid, but never quite did, having been given a brush-off by the board initially. But the growth and financial targets Premier set at the time have been missed. Thus Oasis is definitely correct about Darby’s rewards – £7m over five years is a lot for a company in Premier’s position.
Yet there is a hole in Oasis’ proposal. Its alternative strategy for making progress in a horrible grocery market looks very much like wishful thinking.
The idea is to sell an asset or two, with soup brand Batchelors the likely suspect, with the aim of reducing debt and throwing a few quid into the problematic pension fund. It’s a nice thought if somebody wants to overpay for Batchelors. But flinging assets overboard at any price would be short-termist whereas the pension liabilities are for the long term. The last fire-sale saw Premier sell Quorn for £205m in 2011; the private equity buyer got £550m four years later.
None of which is to suggest that Premier’s board should get a free pass. The relationship with Nissin, the Japanese noodle firm that took a 19% stake at the time of the McCormick saga, looks too cosy for many tastes. Chairman Keith Hamill, in front of the City on Thursday, should be more open about whether the “cooperation” partnership limits Premier’s strategic options. And he should show he is at least open-minded about tidying up loose pieces. Why for example, is the 49% stake in Hovis bread still hanging around?
There is a fortnight to run before shareholders get to vote on Darby’s survival. At the moment, you’d probably prefer MacLaurin and Price’s loyalism since they know the grocery territory. Oasis, if it wants to be taken seriously as a long-term-minded agitator (a very rare breed), needs to do more than shout “enough is enough”. It’s nice to believe buyers would queue to buy Premier assets at juicy prices, but what if they don’t?
Relief for Bank as reality chimes with theory
They will be breathing a sigh of relief at the Bank of England. The economic data is finally behaving as they said it would. After the weak first quarter, affected by the “beast from the east”, the bounce-back is happening.
This week’s surveys have shown slightly stronger levels of activity than the City expected, and the bullish news from services sector completed the set. Chris Williamson, chief economist at IHS Markit said it was consistent with overall GDP growth of 0.4% in the April to June quarter, twice the rate seen in the first three months of the year.
That 0.4% figure is key for the Bank – it is the one predicted in its models. If it actually arrives (find out later this month), it will open the door for the rate increase that Threadneedle Street has been signalling for ages but was forced to defer earlier in the year.
The employment figures could still misbehave, wage growth could disappoint, or retail sales could be weak. But sunshine and football success for England are usually good for economic activity. The odds on an August increase are shortening.
