Foul play at Premier Foods

PreMier Foods has long been a curious beast. essentially it consists of a series of unfashionable british food brands discarded by bigger and better owners who were troubled by the limited marketing opportunities.

The company has done a reasonable job of breathing life into some dated products ranging from ambrosia custard to Mr kipling cakes. it even owns the venerated Lyons brand, a distant part of my own family’s heritage.

but acquisition brought with it heavy costs in the shape of a debt mountain of £496m and pension liabilities of £4.5bn. not a comfortable position for a firm with a market value of just £391m.

Two years ago investors chose to keep faith with Premier and its chief executive Gavin Darby when it could have sold out to overseas marauders McCormick for 60p a share. Darby put up the shutters and the us firm was seen off the field of battle. The share price has continued to languish since, in spite of gaining a business partner in the shape of Japanese noodles champion nissin Foods, which also controls a 20pc stake.

Darby is under siege again. The stalker, activist investor Oasis Management, wants Premier to ditch the batchelors dried foods and pasta brand with an estimated buyout value of £200m.

Too often, companies give into activist investors for a quiet life. britain has become a playground for this new breed, as Whitbread will testify. The us market has been saturated by such incursions.

Wall street valuations currently are high, so extracting cash from uk firms looks like a better proposition.

Premier boss Darby does not have an impressive record. but those who desire to oust him must play by the rules.

Last week Oasis miraculously revealed it had increased its stake in Premier from 9pc to 17.3pc in its quest to send Darby packing. instead of buying stock to achieve its ends, it borrowed the shares from longerterm holders with the purpose of increasing its voting power. borrowing stock is an established practice, especially when it comes to shorting shares, even though it looks like an act of madness for very small gains. Leasing shares to swing shareholder votes is an act of gerrymandering.

The case for keeping Darby in place looks weak, but the use of surreptitious methods devalues shareholder democracy. investors should back Darby at tomorrow’s aGM.

but chairman keith Hamill needs to begin the search for a successor capable of delivering recovery.

Credit crunch

runninG department stores has become treacherous. House of Fraser is shrinking, M&s closing stores, John Lewis is discovering never knowingly undersold is a problem and Debenhams is struggling for oxygen.

There can be no real surprise that credit insurers have become more cautious about Debs, given the current mayhem among cohorts and three successive profit warnings.

The loss of the best terms on credit insurance at this time of the year, when retailers start to gear up for the Christmas holiday, is never good. indeed, the loss of such supplier insurance has, in the past, been a sign that the shutters are about to come down. Debenhams insists it has enough cash in its balance sheet to cope with tighter credit insurance terms. but free cash being held on the balance sheet can quickly run down.

all that can be done in such circumstances is to batten down the hatches and conserve. The dividend is certainly in danger.

Technically, if Debenhams can hang on and implement the turnaround plan proposed by chief executive sergio bucher, it should be able to wean itself off life support. but it may also find itself at a disadvantage if rival House of Fraser comes back into the market with a substantially lower cost base.

selling more beauty products may not prove enough.

Lehman lessons

LOOkinG for an amusing and brilliantly acted primer on the financial crisis of a decade ago? Then seek tickets for The Lehman Trilogy being shown at the national Theatre in London.

it races amusingly through the progress of the three Lehman brothers from cotton traders to investors in railways and to the surrender to traders as the dynasty ran short of family heirs who cared about reputation. Lehman’s policy of refusing to join industry self-help schemes in the 1930s cost it dearly when push came to shove on september 15, 2008. saviours melted away.