McCormick & Co. has agreed to acquire Reckitt Benckiser Group Plc’s food business for $4.2 billion – a deal that would add French’s mustard and Frank’s RedHot sauce to the spice giant’s line-up.
The transaction is expected to be completed in the third or fourth quarter of McCormick’s fiscal 2017, pending regulatory approvals, according to a statement. McCormick plans to fund the deal with a combination of equity and debt, saying that it has obtained committed bridge financing.
The deal would bring a stable of well-known condiments to Sparks, Maryland-based McCormick, which is best known for spices and seasonings. Reckitt, meanwhile, is unloading the products as part of an expansion into baby formula. The British consumer-products company acquired the paediatric-nutrition seller Mead Johnson Nutrition Co. in a $16.6 billion deal earlier this year.
With the deal, combined pro-forma 2017 annual net sales are expected to be approximately $5 billion with significant margin growth, according to the statement.
Acquisition
“The acquisition of RB Foods strengthens McCormick’s flavour leadership with the addition of the iconic French’s and Frank’s RedHot brands to our portfolio, which will become our number-two and number-three brands, respectively,” said McCormick chief executive officer, Lawrence E. Kurzius.
Credit Suisse Group AG is serving as the financial adviser to McCormick on the transaction, and Cleary Gottlieb Steen & Hamilton LLP is legal counsel.
The deal comes as speculation swirls about the next round of consolidation in the packaged-food business. In February, Kraft Heinz Co. was spurned in a blockbuster bid to take over Unilever, the Dutch-Anglo maker of Hellmann’s mayonnaise and Knorr soup. In the aftermath of the failed Kraft talks, Unilever was cited by analysts as a possible bidder for the Reckitt business.
Nestlé SA, the world’s largest food company, may also be shaking up its portfolio. Under activist pressure to improve results, it’s considering selling its US candy operations.
‘Non-Core’ Business
Reckitt said that it was looking to unload its food business in April, when the Slough, England-based company described the division as “non-core”. With £411 million ($536 million) in sales last year, French’s Foods accounted for 4% of Reckitt’s total revenue.
In acquiring Reckitt’s food business, McCormick faced a large group of potential rivals. Bloomberg reported in May that the sale was expected to draw interest from Post Holdings, Inc. and Conagra Brands, Inc. Other possible bidders included JM Smucker Co., Campbell Soup Co., Pinnacle Foods, Inc. and Ajinomoto Co., people familiar with the situation said at the time.
In addition to selling yellow mustard and hot sauce, the division makes ketchup, onion flavourings and other products. The hot-sauce category will continue to see robust growth, with opportunities for expansion, McCormick said in the statement. The company said that it plans to expand the global presence of Frank’s RedHot and French’s products.
McCormick shares dropped 0.1% in New York before the announcement, gaining about 4% this year. Reckitt stock gained 0.6% in London, extending gains to about 13% this year.
Inflection Point
Reckitt’s acquisition of Mead Johnson, announced in February, was an “inflection point” for the company, chief executive officer Rakesh Kapoor has said. He cited urbanisation, changes to China’s one-child policy, and increasing rates of women entering the workforce as reasons for entering the infant-nutrition market, which he sees growing at 3%-5% a year in the medium term.
Reckitt has owned French’s since the 1920s. The brand is concentrated in the US, where it competes with Kraft Heinz’s products.
McCormick dates to 1889, when founder Willoughby McCormick began selling flavours and extracts door to door. The company has grown to more than $4.4 billion in sales.
It went after another UK business in 2016, when McCormick was considering buying Premier Foods Plc, but the suitor walked away from takeover talks in April of that year, saying that Premier was demanding too high a price. That bid would have valued Premier at about $2.1 billion.
McCormick’s Kurzius said at the time that Premier was just one of the company’s M&A ideas.
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