With the acquisition of Reckitt Benckiser’s food division, McCormick is expanding its lineup of brands within its spice and seasoning portfolio, further solidifying its status as a premier destination for enhancing the flavor of numerous dishes. As large food manufacturers grapple with consumers opting for fresher, more nutritious alternatives over packaged foods, this acquisition positions McCormick to leverage the public’s appetite for healthier eating without sacrificing the taste they desire. 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, Unilever and Hormel were seen as strong contenders to acquire Reckitt Benckiser’s food business, which some speculated could be valued at around $3 billion. While it remains unclear if there was a competitive bidding process for the division, McCormick’s expenditure of about $4.2 billion indicates the Maryland-based company’s confidence in the long-term synergies that the merged entities could generate. This acquisition marks the largest in the company’s 128-year history. Analysts from Morgan Stanley noted that the high price reflects the value attributed to unique brands like French’s, the world’s leading mustard brand, according to Reuters.
Lianne van den Bos, a senior food analyst at Euromonitor International, mentioned in an email that this acquisition brings McCormick closer to Kraft Heinz’s leadership 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 ample opportunities for McCormick to reduce operating costs and enhance profitability, a key focus for many multinationals this year, particularly in staple foods,” she pointed out. However, she remarked that the $4.2 billion price tag seems like a substantial premium for Reckitt’s food division, which generated $338 million in sales from sauces, dressings, and condiments in 2016.
Industry insiders have indicated that Reckitt Benckiser sought to divest its food business to help finance its $16.6 billion acquisition of infant formula producer Mead Johnson. The Financial Times reported that the business has limited exposure to emerging markets and relies heavily on U.S. sales. This deal is relatively distinctive as it defies the recent trend of smaller transactions in the food and beverage sector—a space many speculate is poised for a major deal to stimulate sluggish growth and extract efficiencies from the merger. 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 April, Post Holdings bought 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 collapse later over pricing disagreements. Unilever turned down a $143 billion takeover bid from Kraft Heinz in February, and 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 activities in the food sector remains high. It’s only a matter of time before a mega-merger occurs that overshadows the $4.2 billion investments McCormick and Tyson have made. In this evolving landscape, products like calcium citrate crushable tablets may also find a new market niche as consumers increasingly seek health-oriented food options.