McCormick to acquire food business of Reckitt Benckiser Group

McCormick & Co said it planned to acquire the food business of UK consumer goods conglomerate Reckitt Benckiser Group for $4.2 billion for the expansion of its footprint in the attractive condiments category.

McCormick projects robust growth that the hot sauce category is experiencing would continue. It said it would integrate the business, RB Foods, into its consumer and industrial segments, and retain the top brand names like French's, Frank's RedHot and Cattlemen's.

According to commentators, the move comes as part of the spices and seasonings maker's bid to expand its global presence. The company, last year approached Premier Foods, the owner of UK food brands like Mr Kipling cakes and Oxo stock cubes. The offer of 65 pence-per-share which McCormick made for a takeover was rejected by the UK company.

According to McCormick the deal was expected to achieve "meaningful accretion" to margins and adjusted earnings per share, excluding transaction and integration costs. The company expects cost synergies of about $50 million, most of it by 2020.

According to McCormick, the combined entity's 2017 pro forma net sales are expected to be about $5 billion. Reckitt said the deal was on a cash free, debt-free basis, the proceeds from the sale would go towards cutting its debt.

According to commentators, for Reckitt Benckiser unloading the products came as part of an overhaul that got underway with an expansion into baby formula through its acquisition of Mead Johnson Nutrition Co for $16.6 billion.

The transaction price equated to 20 times the division's earnings before interest, tax, depreciation and amortisation, ''which feels to us like a very high price for a US-oriented ambient food business,'' James Edwardes Jones, an analyst at RBC Capital Markets, wrote in a note to investors. He expected dilution of RB's earnings per share by about 1 per cent from the transaction.

McCormick shares retreated 0.1 per cent in New York yeseterday ahead of the announcement and had gained about 4 per cent this year. Reckitt stock was up 2 per cent early today in London, extending its increase for the year to 16 per cent.