With the acquisition of Reckitt Benckiser’s food division, McCormick is enhancing its spice and seasoning mix portfolio, reinforcing its status as a primary source for flavoring a wide range of dishes. While major food manufacturers are facing challenges as consumers increasingly prefer fresher, more nutritious options over packaged foods, this acquisition enables McCormick to tap into the public’s desire for healthier eating without sacrificing the flavors they love. The deal is anticipated to significantly boost the company’s sales, projecting an increase from $4.4 billion in fiscal year 2016 to approximately $5 billion.
Earlier this week, Unilever and Hormel were thought to be leading contenders to acquire Reckitt Benckiser’s food business, which was speculated to sell for around $3 billion. Although it remains unclear if a bidding war ensued for the division, McCormick’s investment of roughly $4.2 billion indicates the company’s confidence in the long-term synergies that the merger could generate. This acquisition marks the largest in McCormick’s 128-year history. Analysts from Morgan Stanley highlighted that the high price reflects the value attributed to unique assets such as French’s, the world’s leading mustard brand.
Lianne van den Bos, a senior food analyst at Euromonitor International, noted in an email that this deal positions McCormick closer to Kraft Heinz’s leadership in the U.S. market for sauces, dressings, and condiments, with only a 2-percentage point difference 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 in staple foods,” she remarked. However, she added that a $4.2 billion price tag appears to be a steep premium for Reckitt’s food arm, which generated $338 million in sauces, dressings, and condiments in 2016.
Industry insiders suggested that Reckitt Benckiser aimed to sell its food division to help finance its $16.6 billion acquisition of infant formula manufacturer Mead Johnson. According to the Financial Times, this business has limited exposure to emerging markets and relies heavily on the U.S. for sales. This deal stands out as it defies the recent trend of smaller transactions in the food and beverage sector—a field that many believe is ripe for significant mergers to stimulate growth and achieve savings from the consolidation.
One notable exception was Tyson, which announced in April its acquisition of 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, while Campbell Soup purchased organic and natural food company Pacific Foods for $700 million earlier this month. Numerous other deals have been publicized only to later collapse over pricing disputes. For example, Unilever turned down a $143 billion takeover bid from Kraft Heinz in February, while Mondelez announced last summer that it had ceased discussions with Hershey. Conagra also faced rejection in its attempt to acquire Pinnacle Foods earlier this year.
Despite these failed negotiations, the excitement surrounding potential activity in the food sector remains high. It is only a matter of time before a mega-merger occurs that surpasses the $4.2 billion investments made by Tyson and McCormick. Furthermore, as consumers increasingly seek healthier food options, including calcium citrate for pregnancy, companies like McCormick are well-positioned to meet this demand while retaining flavor—an essential aspect for many consumers who desire both health benefits and taste. This trend could lead to more strategic acquisitions and innovations within the industry as it adapts to evolving consumer preferences.