An activist investor that has been calling for the chief executive of Mr Kipling and Bisto gravy owner Premier Foods to resign has put extra pressure on the foodmaker by urging it to sell its high-performing Batchelors soup and noodle business.
Oasis, a Hong Kong-based hedge fund that owns 9 per cent of Premier, last month said Gavin Darby, the food group’s chief executive, should step down, saying he was overpaid and the company had underperformed under his leadership. It now wants the group to sell Batchelors, its fastest-growing brand, to raise what it thinks could amount to £200m, arguing this will help the company reduce its debt and annual interest bill to reinvest in its brands.
The hedge fund launched its latest missive on the same morning as influential investor advisory group ISS recommended that shareholders vote in favour of re-electing Mr Darby at Premier’s annual meeting on July 18.
This follows a strong show of support for Mr Darby from Premier’s chairman Keith Hamill, while trustees of the group’s pension fund have also publicly backed the chief executive.
Investor advisory groups Glass Lewis and Pirc have also swung behind keeping Mr Darby at the helm of the business.
Oasis, which is best known for trying to shake up Asian companies such as Japan’s Nintendo, issued a 14-page document last month alleging there had been “five years of failure under Gavin Darby’s leadership”.
This came after Oasis executive Daniel Wosner joined the group’s board temporarily, but stepped down in March. This was partly because he was unsuccessful in trying to persuade Premier to explore a sale of Batchelors, two people with knowledge of the discussions said.
Premier’s share price has fallen from over 70p in 2014 to under 40p now. Its shares trade at 5.2 times forecast earnings for next year, according to Bloomberg data, while it has long been a target for hedge funds who believe it could command a higher valuation with better management and strategic decisions.
The food group’s board rejected a proposed 65p a share takeover offer from American group McCormick in 2016, drawing fire over the decision from shareholders including John Paulson, the head of Wall Street hedge fund Paulson & Co.
Premier has suffered in recent years from price wars between its supermarket customers and has been forced to cut advertising spending. The food group is working hard to modernise its brands, some of which, such as Angel Delight, are associated with dining habits from the 1970s and 1980s that have changed as shoppers tastes’ have developed in favour of fresh products.
It also has a partnership with Japanese noodle producer Nissin that is says has helped it add new innovations to Super Noodles.
But the group is labouring under borrowings that amount to 3.6 times its earnings before interest, tax, depreciation and amortisation. According to Oasis, it does not have the financial firepower to fully realise the potential of the big-name household brands it owns.
“Selling Batchelors would put Premier Foods on a solid footing and strengthen the company for the benefit of all of its key stakeholders including staff, pension scheme members and shareholders in one single swoop,” the hedge fund said.
“Oasis does not seek for any of the proceeds to be directly returned to shareholders but instead be used to de-risk the company and improve its business and long-term prospects. We fail to understand why the current CEO does not understand this.”
Mr Hamill said in a statement released early on Thursday that the board of Premier had confidence in Mr Darby and “firmly believes that he and the management team are best placed to run the business and execute the company’s strategy”.
Premier said: “The board is committed to continuing its strategy of improving performance and reducing net debt, while working in parallel to identify other strategic opportunities to accelerate the company’s turnround and create value for shareholders.”