IT IS ALWAYS a shock to see a share lose 20 per cent of its value in a short space of time. When the company in question is Premier Foods, a processor with unfortunate safety scare associations, investors will be all the more prone to jitters. Seeing as this is the company that owns the Branston’s brand, it is tempting to assume that it is in a right old pickle.
There is, however, a simple and soothing explanation for the one-fifth decline in the price of Premier Foods’ shares. Yesterday morning the company completed a pre-arranged rights issue to raise the £460 million it needs to fund the purchase of Campbells. Investors holding one share worth 310p just before the rights issue announcement on July 12 finalised the purchase of one other share for 185p. Since the total price of the two shares held comes to 495p, it would makes perfect sense that average price of either comes in at just under 250p.
Yesterday was also the day shareholders lost the right to the company’s 5p payable for the half year that ended on 30 June. Add that into the equation and the market price is exactly where it might be expected to be – at an evens stevens 250p.
The nagging doubt is why the company and its advisers felt obliged to pitch the set the rights issue prices at such a deep discount to the prevailing market price. Some leeway can be expected to account for wider market uncertainties that could create difficulties between the time of the rights issue announcement and completion. The deeper the discount, moreover, the lower the underwriting fees. Premier’s big task, meanwhile, is to ensure that Campbells, which will double Premier’s size, is integrated smoothly.