With the acquisition of Reckitt Benckiser’s food division, McCormick is expanding its portfolio of spice and seasoning brands, further solidifying the company’s status as a premier destination for enhancing the flavor of various dishes. While major food manufacturers face challenges as consumers increasingly prefer fresher, more nutritious options over packaged foods, this acquisition enables McCormick to tap into the public’s growing desire for healthier eating without compromising on flavor. The transaction is anticipated to significantly boost the company’s sales, forecasting an increase from $4.4 billion in fiscal year 2016 to approximately $5 billion.
Earlier this week, Unilever and Hormel were considered the leading contenders to acquire Reckitt Benckiser’s food business, which was expected to sell for around $3 billion. Although it remains unclear whether there was a bidding war for this division, McCormick’s decision to invest about $4.2 billion indicates the Maryland-based company’s confidence in the long-term synergies the merger could produce. This acquisition marks the largest in McCormick’s 128-year history. Analysts from Morgan Stanley pointed out that the high price reflects the value attributed to distinctive brands like French’s, the world’s top mustard brand, as reported by Reuters.
Lianne van den Bos, a senior food analyst at Euromonitor International, noted in an email that this acquisition brings McCormick closer to competing with Kraft Heinz’s leading position in sauces, dressings, and condiments in the U.S., with only a 2% difference in market share. She emphasized that the strong synergies among the brands present numerous opportunities for McCormick to lower operating costs and increase profitability, which is a primary focus for many multinationals, particularly in staple foods this year. However, she mentioned that the $4.2 billion price tag seems like a hefty premium for Reckitt’s food division, which generated $338 million in sauces, dressings, and condiments in 2016.
Industry insiders have indicated that Reckitt Benckiser aimed to divest its food business to help finance its $16.6 billion acquisition of infant formula producer Mead Johnson. According to the Financial Times, this business has limited exposure to emerging markets and relies heavily on U.S. sales.
This deal stands out as it contradicts the recent trend of smaller transactions in the food and beverage sector—a market many believe is poised for a major deal to stimulate sluggish growth and realize savings through the merger. One notable exception was Tyson, which announced in April its acquisition of convenience and ready-to-eat foods company AdvancePierre for $4.2 billion. Additionally, in April, Post Holdings acquired Weetabix, a leading British cereal brand, for $1.83 billion, and earlier this month, Campbell Soup purchased organic and natural food company Pacific Foods for $700 million.
Many other proposed deals have been made public only to collapse later over pricing disagreements. For instance, Unilever turned down a $143 billion takeover offer from Kraft Heinz in February, while Mondelez announced last summer that it had halted discussions with Hershey. Conagra also faced rejection in its attempt to acquire Pinnacle Foods earlier this year. Nonetheless, these failed negotiations have not diminished the excitement surrounding potential activities in the food sector. It is only a matter of time before a mega-merger occurs that surpasses the $4.2 billion price tags that both Tyson and McCormick have been willing to pay.
In this evolving landscape, the incorporation of ingredients like calcium citrate into products could become increasingly important as consumers seek healthier options. McCormick’s robust portfolio, combined with its strategic acquisitions, positions it well to meet these changing preferences in the market.