London / UK. (omc) The following is a statement by Oasis Management Company Limited: Oasis Management Company Limited, the largest independent shareholder in Premier Foods PLC with a 9.34 percent shareholding, this week calls on Nissin Foods Holdings Company, Limited, a 19.56 percent shareholder, to abstain from voting for the re-election of Gavin Darby (Resolution 5) at the annual general meeting of Premier Foods on 18 July 2018, and to publicly respond to Oasis on these important issues.
Oasis is calling for the removal of Gavin Darby as Premier Foods CEO with immediate effect following years of persistent shareholder value destruction, poor financial performance, consistent missed targets, a lack of strategy and weak corporate governance. Oasis believes that the removal of Gavin Darby is in the best interests of all shareholders – see also premierleadershipforpremierfoods.com.
Nissin, a Japanese company that makes instant noodles, has a substantial commercial relationship with the Company. It was also reported in January 2018 that Nissin had been in talks with Premier Foods in an effort to purchase Premier Foods’ Batchelors brand. Due to the large size of its shareholding, Nissin is in a position to exert influence on the re-election of CEO Gavin Darby and potentially block the much needed change at Premier Foods, and it is undoubtedly influenced by its own commercial arrangements and interests. Darby has had a close relationship with Nissin having welcomed them in as investors and having run the Premier Foods’ commercial relationship with Nissin which has obviously been to Nissin’s benefit, while Darby has failed to deliver the realisation of value in respect of the Batchelors brands for the benefit of other shareholders. Given the relationship between Darby and Nissin, we have concerns as to whether Nissin can act independently when voting on matters and in the best interests of the Company’s success and the interests of shareholders as a whole. As such, it has interests that are actually conflicting with those of other Premier Foods’ shareholders and any vote in favour of Darby has the potential to create further conflicts in the future as to commercial relationships between Nissin and Premier Foods. We believe that Nissin would be acting against the best interests of other shareholders if it decides to vote in favour of retaining the under-performing CEO Gavin Darby.
Therefore, given these conflicts of interest, Oasis calls on Nissin Foods to abstain from voting on the matter of the re-election of Gavin Darby.
In our view, Nissin’s primary objective is to develop the Batchelors brand. However, this is only one of Premier Foods’ strategic objectives which also include reducing its net debt / Ebitda ratio to below 3x by 2020.
The status quo is expected to lead to a continued slow-burn towards reducing net debt/Ebitda, although the Company from 2014 to 2017 has consistently missed its leverage target and therefore there can be no certainty that they will meet their latest target of below 3.0x net debt/Ebitda by 2020.
Premier Foods could look to sell Batchelors to other potentially interested buyers at a sufficiently attractive price for the Company – however, although this would, in our view, be in the interests of shareholders as a whole it would likely conflict with Nissin’s interests.
The Company needs a CEO who will provide new ideas and perspectives on the best way for it to manage and exploit the value inherent in its Batchelors’ brand, as well as all the other brands in the portfolio and do so in the interests of all shareholders as a whole.
Gavin Darby’s re-election as CEO of the Company at the forthcoming annual general meeting may depend on Nissin voting their 19.56 percent shareholding in his favour. In light of Nissin’s relationship with the Company and their potential conflict of interest, Oasis urges Nissin to abstain from voting on Gavin Darby’s re-election in order not to prejudice the interests of shareholders as a whole.
Furthermore, Oasis notes Nissin’s obligations under the Japan Corporate Governance Code regarding cross shareholdings and ensuring that its investment in any cross shareholding is beneficial for its own shareholders and covers its cost of capital. The current share price (39.10 GBPence at the close of business on 3 July 2018) is demonstrably not beneficial to Nissin’s shareholders, given that they acquired the vast majority of their shareholding at 63 GBPence per share in 2016. Furthermore, Nissin is obliged under the Japan Corporate Governance Code to vote in the best interest of the underlying investment, not to merely support management.
Voting against Gavin Darby is clearly, in our view, in all the interests of shareholders as a whole. In our view, Gavin Darby does not have a credible strategy to return Premier Foods to growth.
Oasis also has concerns regarding “the payment from Premier Foods to Nissin Foods for GBP 0.1m (31st March 2018) and GBP 0.2m (1st April 2017) for “services rendered” which is disclosed on page 108 of Premier Foods’ latest annual report under ‘sale of services’. It remains unclear to Oasis what these payments relate to, despite requests we have made for an explanation.
Under Gavin Darby’s leadership as CEO of Premier Foods, there has been significant shareholder value destruction with the share price down 53 percent since the March 2014 rights issue, 39 percent down from the McCormick takeover price and 34 percent down since Gavin Darby assumed his position in February 2013.
Shareholders have endured five years of failure during Gavin Darby’s tenure as CEO and in our view there is little prospect of the share price recovering to the price that Nissin invested at from its current abysmally low level. Nissin’s 19.56 percent stake in Premier Foods provides appalling value for Nissin’s own shareholders.
Nissin Foods should abstain from voting on the matter of the re-election of Gavin Darby, and Oasis calls on Nissin to respond publicly on these important issues for all to see.
A spokesperson for Oasis said: «Due to Nissin’s significant commercial relationship with Premier Foods we strongly believe they are conflicted and should abstain from voting for Gavin Darby’s re-election at the AGM. Gavin Darby’s tenure is scarred by five years of failure and there is little sign of this changing. It’s time for Gavin to go and we call on Nissin to recognise this – for its own shareholders and those of Premier Foods as a whole. We do not want other Premier Foods’ shareholders best interests to be blocked by Nissin, a conflicted shareholder.»