McCormick buys Reckitt Benckiser’s food division for $4.2bn
McCormick & Company has agreed to purchase Reckitt Benckiser’s Food Division for $4.2-billion, a deal that will make it one of the largest US condiment makers and adding the iconic French’s mustard and Frank’s RedHot brands to its portfolio.
“RB Foods’ focus on creating products with simple, high-quality ingredients makes it a perfect match for McCormick as we continue to capitalise on the growing consumer interest in healthy, flavourful eating,” Lawrence Kurzius, chairman and CEO of McCormick, said.
The purchase of these brands “enables McCormick to become a one-stop shop for condiment, spice and seasoning needs, providing our customers and consumers with an even more diverse and complete flavor product offering.”
McCormick is adding a roster of brands to its spice and seasoning mix portfolio that further strengthens the company’s position as a go-to destination for adding flavor to a variety of dishes.
While large food manufacturers struggle as consumers shun packaged foods in favour of fresher, more nutritious items, this deal allows McCormick to capitalise on the public’s desire to eat better without losing the flavour and taste they covet.
The deal is expected to provide a sizeable boost to the company’s sales, with a projected increase from $4.4-billion in its fiscal year 2016 to around $5-billion.
Prior to the announcement, Unilever and Hormel were believed to be the front-runners to purchase RB’s food business for what some thought could fetch around $3-billion.
It’s uncertain whether there was a bidding war for the division, but with McCormick spending around $4.2-billion, it’s evident the Maryland-based company is confident in the long-term synergies the combined business could create.
The acquisition is the largest in the company’s 128-year old history.
Morgan Stanley analysts wrote that the high price shows the value placed on unique assets like French’s, which is the world’s leading mustard brand, Reuters reported.
Lianne van den Bos, a senior food analyst at Euromonitor International, said that the deal brings McCormick close to Kraft Heinz’s leadership position in sauces, dressings and condiments in the US — with only a 2%-point difference in market share.
“The strong synergies between the brands offer plenty of opportunities for McCormick to bring operating costs down and increase profitability, a key focus area for many multinationals this year especially within staple foods,” she noted.
“That said, a $4.2-billion price tag seems a hefty premium to pay for Reckitt’s food arm that generated $338-million in sauces, dressings and condiments in 2016.”
Industry insiders said Reckitt Benckiser wanted to sell its food business to help pay for its $16.6-billion acquisition of infant formula maker Mead Johnson. The Financial Times said the business has minimal exposure to emerging markets and is heavily dependent on the US for sales.
The deal is relatively unique in that it bucks the recent trend of generally small deals in the food and beverage space — a sector many have speculated is ripe for a big transaction to help jumpstart sluggish growth and wring out savings between the two merged companies.
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