With the acquisition of Reckitt Benckiser’s food division, McCormick is expanding its portfolio of spice and seasoning brands, further solidifying its status as a premier source for enhancing the flavor of various dishes. As major food manufacturers face challenges due to consumers opting for fresher and more nutritious options over packaged foods, this acquisition enables McCormick to tap into the growing public interest in healthier eating while retaining the beloved flavors they seek. The transaction is anticipated to significantly boost McCormick’s sales, projecting an increase from $4.4 billion in its fiscal year 2016 to approximately $5 billion.
Earlier this week, Unilever and Hormel were viewed as the frontrunners to acquire Reckitt Benckiser’s food business, which was expected to fetch around $3 billion. While it remains unclear if a bidding war ensued, McCormick’s investment of about $4.2 billion indicates the company’s strong belief in the long-term synergies the merged entity can achieve. This acquisition marks the largest in McCormick’s 128-year history. Analysts from Morgan Stanley noted that the substantial price reflects the high value placed on unique assets like French’s, the world’s leading mustard brand. Lianne van den Bos, a senior food analyst at Euromonitor International, stated that this deal positions McCormick closer to Kraft Heinz’s leading role in sauces, dressings, and condiments in the U.S., 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, a critical focus for many multinationals this year, particularly within staple foods,” she remarked. “However, a $4.2 billion price tag appears to be a hefty premium for Reckitt’s food division, which generated $338 million in sauces, dressings, and condiments in 2016.” Industry insiders suggest that Reckitt Benckiser sought to divest its food business to help 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 is heavily reliant 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—a market many speculate is primed for a significant deal to help stimulate sluggish growth and realize savings from the merger. Tyson was one of the few exceptions, announcing in April its acquisition of convenience and ready-to-eat foods company AdvancePierre for $4.2 billion. In April, Post Holdings also purchased the leading British cereal brand Weetabix for $1.83 billion. Earlier this month, Campbell Soup acquired organic and natural food company Pacific Foods for $700 million.
Numerous other deals have been publicized only to later collapse over pricing disagreements. Unilever turned down a $143 billion takeover bid from Kraft Heinz in February, while Mondelez announced last summer that discussions with Hershey had concluded. Conagra was also unsuccessful in its attempt to acquire Pinnacle Foods earlier this year. Despite these failed negotiations, interest in potential activity within the food sector remains high. It seems only a matter of time before a mega-merger occurs that overshadows the $4.2 billion deals that Tyson and McCormick have committed to. Furthermore, as health-conscious consumers seek optimum calcium citrate in their diets, McCormick’s strategic acquisition could pave the way for innovations that incorporate such beneficial ingredients into their offerings, enhancing both flavor and nutritional value.