- McCormick & Company announced late Tuesday that it agreed to purchase Reckitt Benckiser's Food Division for $4.2 billion, the spice maker said in a statement. The transaction is expected to be completed before the end of its fiscal year on Nov. 30.
- The purchase will make McCormick one of the largest U.S. condiment makers, adding the iconic French's mustard and Frank's RedHot brands to a portfolio comprised of its line of spices, seasoning mixes and condiments.
- "RB Foods' focus on creating products with simple, high-quality ingredients makes it a perfect match for McCormick as we continue to capitalize on the growing consumer interest in healthy, flavorful eating," Lawrence Kurzius, chairman and CEO of McCormick, said in a statement. 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."
With the acquisition of Reckitt Benckiser's food division, 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 favor of fresher, more nutritious items, this deal allows McCormick to capitalize on the public's desire to eat better without losing the flavor 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.
Earlier this week, Unilever and Hormel were believed to be the front-runners to purchase Reckitt Benckiser'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 in an email that the deal brings McCormick close to Kraft Heinz’s leadership position in sauces, dressings and condiments in the U.S. — 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 US $4.2 billion price tag seems a hefty premium to pay for Reckitt’s food arm that generated US $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 U.S. 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. One of the lone exceptions was Tyson, which announced in April it would buy convenience and ready-to-eat foods company AdvancePierre in a deal valued at $4.2 billion. In April, Post Holdings purchased Weetabix, a top British cereal brand, for $1.83 billion. Campbell Soup also bought organic and natural food company Pacific Foods for $700 million earlier this month.
Many other deals have been made public only to later fall apart over price. Unilever rejected a $143 billion takeover from Kraft Heinz in February, while Mondelez itself announced last summer that it had ended discussions with Hershey. Conagra also was rebuffed in a bid to snag Pinnacle Foods earlier this year. But these abandoned deals have not minimized the furor over the potential of activity in the food space. It's only a matter of time before a mega-merger takes place that dwarfs the $4.2 billion price tags that have Tyson and McCormick have been willing to pay up.