With the acquisition of Reckitt Benckiser’s food division, McCormick is significantly enhancing its portfolio of spices and seasonings, solidifying its status as a premier destination for flavoring a wide array of dishes. As major food manufacturers grapple with consumers’ shift away from packaged foods towards fresher, more nutritious options, this acquisition enables McCormick to leverage the public’s appetite for healthier eating without sacrificing the taste they desire. The deal is anticipated to substantially increase the company’s sales, with projections suggesting a rise from $4.4 billion in fiscal year 2016 to approximately $5 billion.
Earlier this week, Unilever and Hormel were seen as leading contenders to acquire Reckitt Benckiser’s food business, which was estimated to be valued at around $3 billion. While it is unclear if there was a competitive bidding process for the division, McCormick’s investment of about $4.2 billion indicates the company’s confidence in the long-term synergies the merger could generate. This acquisition marks the largest in McCormick’s 128-year history. Analysts at Morgan Stanley noted that the high acquisition cost reflects the value of unique assets like French’s, the world’s top mustard brand, according to Reuters.
Lianne van den Bos, a senior food analyst at Euromonitor International, stated in an email that this deal brings McCormick closer to rivaling Kraft Heinz’s leadership in sauces, dressings, and condiments in the U.S., with only a 2% difference in market share. “The strong synergies between the brands present numerous opportunities for McCormick to lower operating costs and boost profitability, which is a primary focus for many multinationals this year, particularly in staple foods,” she pointed out. However, she added that a $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 manufacturer Mead Johnson. The Financial Times reported that this business has limited exposure to emerging markets and relies heavily on the U.S. for sales. This deal is particularly noteworthy as it contrasts with the recent trend of smaller transactions in the food and beverage sector—a field many have speculated is primed for a major deal to invigorate sluggish growth and extract savings from the two combined companies.
One notable exception was Tyson, which announced in April that it would purchase convenience and ready-to-eat foods company AdvancePierre for $4.2 billion. In the same month, Post Holdings acquired Weetabix, a leading British cereal brand, for $1.83 billion. Additionally, Campbell Soup bought organic and natural food company Pacific Foods for $700 million earlier this month. However, many other deals have been publicly announced only to collapse later over pricing disagreements. For example, Unilever famously rejected a $143 billion takeover offer from Kraft Heinz in February, while Mondelez disclosed last summer that it had ended discussions with Hershey. Conagra also faced setbacks in its bid for Pinnacle Foods earlier this year.
Despite these abandoned negotiations, interest in potential deals within the food sector remains high. It is only a matter of time before a mega-merger occurs that surpasses the $4.2 billion expenditures that companies like Tyson and McCormick have been willing to invest. As McCormick moves forward with its acquisition, the introduction of products like calcium magnesium citrate with D3 into its offerings could further enhance its appeal and market share in the evolving food landscape.