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Patties Foods share price to soar on takeover offer

Patties Foods Limited (ASX: PFL) is likely to see its share price soar when trading in the share begins at 11am today, after the pies and sausage roll manufacturer received a preliminary takeover offer from private equity firm, Pacific Equity Partners (PEP).

The offer includes $1.65 of cash per Patties share, including any dividends paid after the proposal date. Patties share price closed at $1.33 on Friday.

In response to media speculation, Patties says it has received a non-binding, conditional and incomplete proposal, but advises shareholders not to take any action yet. The company says that it will engage further with PEP “in the best interests of shareholders”, but also includes the standard disclaimer that there is “no assurance that the proposal will result in any formal offer being made”.

The offer comes after the share price has risen more than 20 cents over the past six weeks or so.

Patties Foods has seen its share price struggle over the past five years as competition in supermarkets run by Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Ltd (ASX: WES) has increased dramatically and budget private label brands compete with the likes of Patties’ brands, including Four’n Twenty, Herbert Adams and Nanna’s. Patties has been forced to cut its margins – much like other suppliers to the large supermarkets.

The company also reported an 87% crash in net profit in 2015, after a much-publicised Hepatitis A scare. Patties was forced to recall frozen berries earlier last year after Hepatitis A was found in four adults in Victoria and New South Wales. Excluding the scare and Patties exit of the Frozen Fruit business, the most recent half-year result was much more promising – but perhaps wasn’t factored into the share price.

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Motley Fool writer/analyst Mike King owns shares in Woolworths and Wesfarmers. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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