The Reckitt Benckiser Group has sold its food division to McCormick & Co for $4.2 billion USD.
The deal brings a stable of well-known condiments to the US based food company including French’s Mustard and Frank’s REDHOT Sauce. McCormick & Company is a Fortune 1000 company that manufactures spices, herbs, and flavourings for retail, commercial, and industrial markets. It was founded in 1889 in Baltimore, Marylands, United States. McCormick and today boasts over 8,000 employees.
Their brands include McCormick; Zatarain’s, Lawry’s Old Bay Seasoning, Mojave Foods, Thai Kitchen and Simply Asia (United States); Ducros, Drogheria & Alimentari, Kamis, Galeo, Margao, Silvo, and Vahine (Europe); Club House Spices and Billy Bee Honey (Canada); Schwartz (UK) Schwartz; Aeroplane Jelly and Keen’s Mustard (McCormick Foods Australia); Kamis (Poland) Margão (Portugal)
“French’s Mustard and Frank’s REDHOT Sauce will become McCormick’s second- and third-largest brands, respectively,” CEO Lawrence E. Kurzius said in a statement late Tuesday.
McCormick’s pro forma 2017 annual net sales are expected to be approximately $5 billion, with significant margin growth, according to the statement.
In addition to selling yellow mustard and hot sauce, the division makes ketchup, onion flavourings and other products. “Hot sauce will continue to see robust growth, with opportunities for expansion”, a spokesman for McCormick said. “The company said it plans to expand the global presence of Frank’s RedHot and French’s products, whose sales are now concentrated in the U.S”.
For Reckitt Benckiser, the sale of this division continues an overhaul that began with an expansion into baby formula through the British company’s acquisition of Mead Johnson Nutrition Co. for $16.6 billion USD. Mead Johnson Nutrition is a leading manufacturer of infant formula both domestically and globally with its flagship product Enfamil. The company dates back to a firm created by Edward Mead Johnson, one of the co-founders of Johnson & Johnson, who created his own business in 1895, which was renamed Mead Johnson & Company in 1905. The company was majority owned by Bristol Myers Squibb after an acquisition in 1967, but was spun off in 2009 as an independent firm.
In the year-ending 31st December 2016, Mead Johnson reported net sales of $3,743 million. 50% of those sales were generated in Asia, 17% in Latin America and 33% in North America/Europe. For the same time period, the company reported total assets of $4,088 million.
The purchase transaction price equates to 20 times the division’s earnings before interest, tax, depreciation and amortization, “which feels to us like a very high price for a U.S. oriented ambient food business,” James Edward Jones, an analyst at RBC Capital Markets, wrote in a note, he predicts “the transaction will dilute RB’s earnings per share by about 1%”.
Reckitt’s Chief Executive Officer Rakesh Kapoor, said “it (RB) was looking to sell its food business in April”, when the Slough, England-based company described the division as “non-core business.” With 411 million pounds ($536 million USD) in sales last year, French’s Foods accounted for 4% of Reckitt’s total revenue.
The deal is expected to be completed in the third or fourth quarter of McCormick’s fiscal 2017, pending regulatory approvals. McCormick plans to fund the deal with a combination of equity and debt, and said it has obtained committed bridge financing.