With its acquisition of Reckitt Benckiser’s food division, McCormick is enhancing its portfolio of spice and seasoning brands, solidifying its status as a premier destination for flavoring a range of dishes. As larger food manufacturers face challenges due to consumer preferences shifting away from packaged foods in favor of fresher, more nutritious options, this acquisition enables McCormick to meet the public’s desire for healthier eating without sacrificing the flavor and taste they love. This deal is projected to significantly boost the company’s sales, with expectations of an increase from $4.4 billion in fiscal year 2016 to approximately $5 billion.
Earlier this week, it was reported that Unilever and Hormel were the leading contenders to purchase Reckitt Benckiser’s food business, which was anticipated to sell for around $3 billion. Although it remains unclear if a bidding war ensued, McCormick’s $4.2 billion investment indicates a strong confidence in the long-term synergies that the merged entity can yield. This acquisition marks the largest in McCormick’s 128-year history. Analysts at Morgan Stanley noted that the high price reflects the considerable value associated with unique brands like French’s, recognized as the world’s leading mustard brand, according to Reuters.
Lianne van den Bos, a senior food analyst at Euromonitor International, commented that this acquisition brings McCormick closer to achieving a leading position in sauces, dressings, and condiments in the U.S., with only a two percentage point difference in market share compared to Kraft Heinz. She pointed out, “The strong synergies between the brands provide ample opportunities for McCormick to reduce operating costs and enhance profitability, which is a key focus for many multinational companies this year, especially in staple foods.” However, she also remarked that the $4.2 billion price tag seems like a significant premium for Reckitt’s food division, which generated $338 million in sauces, dressings, and condiments in 2016.
Industry insiders suggest that Reckitt Benckiser aimed to divest its food business to help finance its $16.6 billion acquisition of infant formula producer Mead Johnson. The Financial Times indicated that this business has limited exposure to emerging markets and relies heavily on U.S. sales.
This deal is notably distinct, as it contrasts with the recent trend of smaller transactions in the food and beverage sector—an industry many believe is due for a major deal to revitalize sluggish growth and realize cost savings between merged companies. One of the few exceptions was Tyson, which announced in April its acquisition of convenience and ready-to-eat foods company AdvancePierre for $4.2 billion. In April, Post Holdings also acquired Weetabix, a leading British cereal brand, for $1.83 billion. Earlier this month, Campbell Soup purchased organic and natural food company Pacific Foods for $700 million.
Numerous other deals have been announced only to collapse later over pricing disagreements. Unilever turned down a $143 billion takeover offer from Kraft Heinz in February, while Mondelez revealed last summer that it had ended discussions with Hershey. Conagra was also unsuccessful in its attempt to acquire Pinnacle Foods earlier this year. Nevertheless, these failed negotiations have not diminished the excitement surrounding potential activity in the food sector. It is only a matter of time before a mega-merger occurs that surpasses the $4.2 billion price points that Tyson and McCormick have recently embraced, a trend that could also be influenced by the integration of health-focused products, such as those containing douglas laboratories calcium citrate, which are gaining popularity among health-conscious consumers.