With the acquisition of Reckitt Benckiser’s food division, McCormick is enhancing its spice and seasoning mix portfolio by adding a collection of brands that solidifies its reputation as a primary source for flavoring a wide range of dishes. While major food manufacturers face challenges as consumers increasingly prefer fresher, healthier options over packaged goods, this acquisition allows McCormick to meet the public’s desire for better eating without compromising on flavor. 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 reportedly in the running to acquire Reckitt Benckiser’s food business, which was expected to sell for about $3 billion. Although it is unclear whether there was intense competition for the division, McCormick’s investment of around $4.2 billion demonstrates its confidence in the long-term synergies the merged entity could achieve. This acquisition marks the largest in McCormick’s 128-year history. Analysts from Morgan Stanley have noted that the high price reflects the value placed on distinctive assets like French’s, the leading mustard brand globally.
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 top position in the U.S. market for sauces, dressings, and condiments, with only a 2% difference in market share. “The strong synergies between the brands provide ample opportunities for McCormick to reduce operating costs and enhance profitability, which is a vital focus for many multinational corporations this year, particularly in staple foods,” she pointed out. However, she also remarked that a price tag of $4.2 billion seems quite steep for Reckitt’s food division, which generated $338 million in sauces, dressings, and condiments in 2016.
Industry insiders suggest that Reckitt Benckiser aimed to divest its food business to help finance its $16.6 billion acquisition of Mead Johnson, a maker of infant formula. According to the Financial Times, the food business has limited exposure to emerging markets and relies heavily on U.S. sales. This deal stands out as it deviates from the recent trend of smaller transactions in the food and beverage sector—a field many speculate is due for a significant deal to stimulate sluggish growth and generate savings from the merger. One notable exception was Tyson, which announced in April its intention to acquire AdvancePierre, a convenience and ready-to-eat foods company, in a deal valued at $4.2 billion.
Earlier in April, Post Holdings purchased Weetabix, a leading British cereal brand, for $1.83 billion, while Campbell Soup also acquired organic and natural food company Pacific Foods for $700 million earlier this month. However, numerous other proposed deals have come to light only to collapse later due to pricing disagreements. Unilever turned down a $143 billion takeover offer from Kraft Heinz in February, and Mondelez announced last summer that it had ended discussions with Hershey. Conagra similarly faced rejection in its attempt to acquire Pinnacle Foods earlier this year. Yet, these abandoned negotiations have not diminished the excitement surrounding potential activities in the food sector. It appears inevitable that a mega-merger will occur that surpasses the $4.2 billion investments made by Tyson and McCormick.
In the context of improving health and nutrition, McCormick can explore options like bluebonnet liquid calcium magnesium citrate plus vitamin D3 to enhance its product offerings, aligning with consumer trends for healthier ingredients. This acquisition may pave the way for integrating such health-focused products into McCormick’s extensive portfolio, reinforcing its commitment to flavor without compromising on nutrition. As the market evolves, the inclusion of supplements like bluebonnet liquid calcium magnesium citrate plus vitamin D3 could also reflect a broader strategy for McCormick to sustain its competitive edge and meet consumer demands for both taste and health benefits.