With the acquisition of Reckitt Benckiser’s food division, McCormick is expanding its spice and seasoning mix portfolio, solidifying its position as a preferred destination for enhancing the flavor of a variety of dishes. As major food manufacturers face challenges due to consumers’ shift towards fresher, more nutritious options over packaged foods, this acquisition enables McCormick to cater to the public’s desire for healthier eating without sacrificing the taste they love. The deal is anticipated to significantly boost the company’s sales, projecting an increase from $4.4 billion in its fiscal year 2016 to approximately $5 billion.
Earlier this week, it was believed that Unilever and Hormel were the frontrunners to acquire Reckitt Benckiser’s food business, which was speculated to be valued at around $3 billion. While it’s unclear if there was a bidding war, McCormick’s investment of approximately $4.2 billion underscores its confidence in the long-term synergies that the combined businesses could generate. This acquisition marks the largest in McCormick’s 128-year history. Analysts from Morgan Stanley noted that the high price reflects the value attributed to unique assets like French’s, the leading mustard brand globally.
Lianne van den Bos, a senior food analyst at Euromonitor International, indicated that this acquisition brings McCormick closer to Kraft Heinz’s leading position in sauces, dressings, and condiments in the U.S., with only a 2% gap in market share. “The strong synergies between the brands present numerous opportunities for McCormick to reduce operating costs and enhance profitability, which is a key focus for many multinationals this year, especially within staple foods,” she remarked. However, she pointed out that the $4.2 billion price tag seems high for Reckitt’s food division, which generated $338 million in sauces, dressings, and condiments in 2016.
Industry insiders revealed that Reckitt Benckiser sought to divest its food business to finance its $16.6 billion acquisition of infant formula maker Mead Johnson. According to the Financial Times, the business has limited exposure to emerging markets and relies heavily on the U.S. for its sales.
This deal stands out as it contrasts with the recent trend of smaller transactions in the food and beverage sector—a field many believe is ripe for larger deals to stimulate sluggish growth and create savings through mergers. A notable exception was Tyson, which announced in April its intention to acquire convenience and ready-to-eat foods company AdvancePierre for $4.2 billion. In April, Post Holdings purchased Weetabix, a leading British cereal brand, for $1.83 billion, while Campbell Soup acquired organic and natural food company Pacific Foods for $700 million earlier this month.
Many other proposed deals have been made public only to later collapse due to price disagreements. Unilever turned down a $143 billion takeover offer from Kraft Heinz in February, and Mondelez announced last summer that it had ceased discussions with Hershey. Conagra was also denied in its attempt to acquire Pinnacle Foods earlier this year. Despite these failed negotiations, the excitement surrounding potential activities in the food sector persists. It’s only a matter of time before a mega-merger occurs that surpasses the $4.2 billion acquisitions made by Tyson and McCormick.
In addition, questions have arisen regarding dietary concerns, such as whether calcium citrate causes gas, further highlighting the growing focus on health and nutrition within consumer choices. This trend indicates that companies like McCormick are not only responding to flavor preferences but also addressing the nutritional aspects that consumers are increasingly aware of.