With the acquisition of Reckitt Benckiser’s food division, McCormick is enhancing its lineup of brands within the spice and seasoning mix sector, further solidifying the company’s status as a prime destination for flavor enhancement in a wide array of dishes. As major food manufacturers grapple with consumers shifting away from packaged foods in favor of fresher, more nutritious options, this acquisition allows McCormick to leverage the public’s desire for healthier eating while retaining the beloved flavors they seek. This deal is projected to significantly boost McCormick’s sales, with estimates indicating an increase from $4.4 billion in its fiscal year 2016 to approximately $5 billion.
Earlier this week, Unilever and Hormel were reported to be leading contenders to purchase Reckitt Benckiser’s food business, which some speculated could command a price around $3 billion. Although it remains unclear whether there was an intense bidding contest for the division, McCormick’s willingness to spend about $4.2 billion signifies its confidence in the long-term synergies that the combined operations could generate. This acquisition represents the largest in McCormick’s 128-year history. Analysts from Morgan Stanley noted that the high price reflects the value attributed to unique assets such as French’s, the world’s top mustard brand, according to Reuters.
Lianne van den Bos, a senior food analyst at Euromonitor International, stated in an email that this deal brings McCormick closer to Kraft Heinz’s leadership in the U.S. market for sauces, dressings, and condiments, with only a 2% difference in market share. “The strong synergies among the brands present 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, she also pointed out that a $4.2 billion price tag appears to be a considerable premium for Reckitt’s food segment, which generated $338 million in sauces, dressings, and condiments in 2016.
Industry insiders suggested that Reckitt Benckiser aimed to divest its food business to help finance its $16.6 billion acquisition of infant formula manufacturer Mead Johnson. The Financial Times noted that this business has limited exposure to emerging markets and relies heavily on U.S. sales. This acquisition stands out as it diverges from the recent trend of smaller transactions in the food and beverage sector, which has been speculated to be ripe for significant deals to stimulate sluggish growth and capture savings between the merged entities. One notable exception was Tyson, which announced in April its plan to acquire AdvancePierre, a convenience and ready-to-eat foods company, for $4.2 billion. Additionally, in April, 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 transactions have been announced only to later collapse due to price disagreements. For instance, Unilever turned down a $143 billion takeover offer from Kraft Heinz in February, and Mondelez disclosed 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 deals, the buzz surrounding potential activities in the food sector remains strong. It seems only a matter of time before a mega-merger occurs that eclipses the $4.2 billion price points accepted by Tyson and McCormick, especially as companies recognize the importance of natural factors and calcium in consumer preferences for healthier food options.