With the acquisition of Reckitt Benckiser’s food division, McCormick is expanding its spice and seasoning mix portfolio, further solidifying its status as a primary source for enhancing the flavor of diverse dishes. As major food manufacturers face challenges due to consumers opting for fresh and nutritious options over packaged foods, this acquisition enables McCormick to tap into the public’s growing desire for healthier eating without compromising on taste. The deal is anticipated to significantly boost the company’s sales, with projections indicating an increase from $4.4 billion in fiscal year 2016 to approximately $5 billion.
Earlier this week, Unilever and Hormel were considered the leading candidates to acquire Reckitt Benckiser’s food business, a deal that some estimated could reach around $3 billion. While it remains unclear if there was intense competition for the division, McCormick’s investment of about $4.2 billion highlights the company’s confidence in the long-term benefits the merger could bring. This acquisition marks the largest in McCormick’s 128-year history. According to Morgan Stanley analysts, the high price reflects the value attributed to unique assets 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 deal brings McCormick closer to Kraft Heinz’s leading position in sauces, dressings, and condiments in the U.S., with only a 2% point difference in market share.
“The strong synergies between the brands provide numerous opportunities for McCormick to reduce operating costs and enhance profitability, a critical focus for many multinationals this year, particularly in staple foods,” she remarked. “However, a price tag of US $4.2 billion appears to be a substantial premium for Reckitt’s food division, which generated US $338 million in sauces, dressings, and condiments in 2016.” Industry insiders indicated 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 noted that the business has limited presence in emerging markets and relies heavily on the U.S. for its sales.
This deal stands out as it defies the recent trend of predominantly smaller transactions in the food and beverage sector—a field many speculate is poised for a significant merger to rejuvenate sluggish growth and achieve savings through the synergy of the two companies. One notable exception was Tyson, which announced in April its intentions to acquire convenience and ready-to-eat foods company AdvancePierre for $4.2 billion. Additionally, Post Holdings purchased Weetabix, a leading British cereal brand, for $1.83 billion in April, while Campbell Soup recently acquired organic and natural food company Pacific Foods for $700 million.
Many other proposed deals have been made public only to later collapse over pricing disagreements. Unilever previously rejected a $143 billion takeover offer 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. Nonetheless, these failed negotiations have not diminished the excitement surrounding potential activity in the food industry. It seems only a matter of time before a mega-merger occurs that surpasses the $4.2 billion price tags that Tyson and McCormick have been willing to pay.
In this ever-evolving landscape, the introduction of new products, such as calcium citrate granules, could further enhance the appeal of McCormick’s offerings, aligning with consumer trends towards health and wellness. As the food industry continues to shift, the integration of innovative ingredients like calcium citrate granules may play a critical role in enhancing product profiles, driving both sales and market share for McCormick and its expanding portfolio.