It’s the mother of all food fights.
Ambrosia custard, Bisto gravy, Mr Kipling cakes and Sharwood’s mango chutney are all found in millions of British kitchen cupboards – and the company that owns them is at the centre of a furious shareholder row City wags are calling “dessert storm”.
Premier Foods, which also owns Oxo, Batchelors, Angel Delight and Be-Ro, has for the last month been resisting an attempt by its second largest shareholder, the activist investor Oasis Management, to unseat its chief executive, Gavin Darby.
Hong Kong-based Oasis, which owns 9.3% of Premier, gave up its seat on the company’s board in March this year and, last month, said it planned to vote against Mr Darby’s re-election as chief executive at its annual meeting on 18 July.
Its litany of complaints against Mr Darby, a previous Vodafone executive and later former chief executive of Cable & Wireless Worldwide, includes accusations of weak financial performance, missed targets and poor corporate governance that it says have reduced Premier to a “zombie-like state”.
Chief among its grievances is that, two years ago, Premier turned down a £537m takeover approach from US spice-making firm McCormick that was worth 65p per share.
Premier’s share price today is just 39.5p and, Oasis argues, targets for sales growth that were made at the time of the McCormick approach were subsequently abandoned.
Oasis is also unhappy that, to see off McCormick, Mr Darby instead forged an alliance with Nissin, the Japanese instant noodle maker, which now has a 20% stake in the company that effectively blocks any potential bidders.
It also argues that Mr Darby is paid too much to run a company of Premier’s size.
Today, it stepped up its campaign, urging Premier to sell its Batchelors brand which, it argues, would fetch more than £200m – or more than 60% of Premier’s current stock market valuation. The brand is currently Premier’s fastest-growing.
Oasis said the sale proceeds should not be returned to shareholders, but instead be used to cut Premier’s debt, noting that interest payments currently consume around half of the company’s cash flow.
It added: “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.”
Premier has hit back.
Its chairman Keith Hamill – who, as finance director of hotel operator Forte two decades ago, was involved in one of the City’s most vicious takeover battles in living memory – has insisted Mr Darby is running the company well.
Mr Darby says he has cut the company’s debts – which stood at nearly £1bn when he took the job in February 2013 – has made it more efficient, introduced innovative new products and delivered its strongest sales growth in more than five years in its most recent financial year.
Mr Hamill has also wheeled out some big guns from the food retail sector to speak up for Mr Darby, including Lord MacLaurin, the former Tesco chairman and Lord Price, the former managing director of Waitrose.
Three leading shareholder advisory firms, Glass Lewis, ISS and Pensions & Investments Research Consultants (PIRC), have also come to Mr Darby’s support by recommending shareholders re-elect him while trustees of the company pension scheme are also backing him.
Yet Mr Hamill has himself now found himself under fire from Oasis after ruling out brand sales and telling the Financial Times “you can’t successfully auction with weak cards”. Oasis said Premier’s brands were not “weak cards” but “mismanaged gems”.
So, who’s right?
Both sides have good arguments in their kitchen cupboard.
The hardest of Oasis’s claims to rebut is that the board dismissed the interest from McCormick far too quickly and, by getting into bed with Nissin, appears to have put preserving the company’s independence – and their jobs – ahead of the interests of shareholders.
It can also legitimately argue that, while Mr Darby has reduced the company’s debts, debts as a proportion of earnings have risen. It is also fair to say that Mr Darby is well paid for a company of this size.
But Premier is justified in arguing that, after years of hard grind, Premier does finally appear to be enjoying solid sales growth and, in particular, in international markets.
Some of this growth can be put down to its partnership with Nissin.
Premier is also right to question whether anyone could reasonably have done better than Mr Darby who, when he arrived, was the company’s third chief executive in two years and who inherited a business groaning with debt and whose very existence was in doubt.
Innovations such as Batchelors Super Noodles pots and Mr Kipling fruit slices have started to deliver stronger sales growth – no mean feat at a time when all of the major supermarkets are more than ever putting the squeeze on makers of branded food and drinks.
Who will win? The chances are that, with Nissin’s 20% and the shareholder advisory firms behind him, Mr Darby will live to fight another day.
But Oasis was today insisting that “other independent shareholders share our concerns and that there is wide-ranging support for the removal of Gavin Darby as CEO”.
The two sides look set to continue throwing insults at each other, if not bread rolls, for the next couple of weeks.