McCormick completed the acquisition of Reckitt Benckiser’s food unit in August 2017
McCormick will acquire Reckitt Benckiser’s food assets, including brands like French’s mustard and Frank’s RedHot sauce, after agreeing a $4.2 billion deal.
The unit made $179 million in pre-tax profit in 2016, but is largely periphery for consumer goods giant RB, which performs much stronger in domestic products and personal care. Net revenue for the year was $564 million.
The sale comes three-and-a-half months after RB announced that it would offload the business, in the face of more than £4 billion’s worth of debt and having committed almost $18 billion to acquire infant formula manufacturer Mead Johnson – a deal it said would ‘significantly strengthen’ its position in developing markets.
It’s the latest chapter in the continuing saga of RB’s food spin-off, with the potential sale mooted in April before reports that the company was getting closer to a sale at the beginning of May.
Only this week, reports suggested that Unilever and Hormel Foods were the most likely suitors for the business. McCormick’s name was mentioned, too, but few observers saw the sale of the price reaching such a high figure.
The $4.2 billion involved is 1.5 times the amount speculated in April, when news of the sale emerged, and represents more than 23 times the annual profit of RB Food.
Reckitt Benckiser chief executive officer Rakesh Kapoor said: “Our French’s Food business is a true reflection of RB’s strengths – a portfolio of great brands driven through a culture of innovation by passionate people to deliver consistent outperformance. We are pleased to be selling to owners who can provide the necessary resources, market expertise and global platform, whilst being a good home for our people. French’s Food is well positioned to continue on its successful growth trajectory under the food-focused ownership of McCormick.”
The proceeds from the sale will be used to reduce Reckitt Benckiser’s burden of debt, after it came under pressure from investors following the Mead Johnson takeover.
“Following the acquisition of Mead Johnson Nutrition, this transaction marks another step towards transforming RB into a global leader in consumer health and hygiene, ensuring we continue to deliver for shareholders and give people innovative solutions for healthier lives and happier homes.”
Analysis: Why RB has sold its food business
Food has always been a ‘non-core’ area for Reckitt Benckiser, with its food brands making up less than 5% of group-wide revenues. Indeed, it’s better known for personal care products like Veet, Scholl and Durex, as well as cleaning brands such as Dettol and Cillit Bang.
It’s not difficult to see why food would be a distraction: brands like French’s and Cattlemen’s don’t sit particularly comfortably in a list of RB’s other brands. Rivals like Procter and Gamble have concentrated their efforts on the core personal care and hygiene markets, while Unilever, which has some personal care products like Axe/Lynx, does a much better job in the food space.
So it makes sense now, in the face of more than £4 billion’s worth of debt and having committed almost $18 billion to the Mead Johnson deal, that it would offload the business and ease a little bit of pressure from its investors. McCormick has acquired some brands with real equity, and may be able to make a good job of them.
McCormick called the acquired brands ‘iconic’ and ‘market-leading’.
Chief executive officer Lawrence E Kurzius said: “The acquisition of RB Foods strengthens McCormick’s flavour leadership with the addition of the iconic French’s and Frank’s RedHot brands to our portfolio, which will become our number two and number three brands, respectively. RB Foods’ focus on creating products with simple, high-quality ingredients makes it a perfect match for McCormick as we continue to capitalise on the growing consumer interest in healthy, flavourful eating.
“The addition of Frank’s RedHot Hot Sauce – the clear consumer favourite in an attractive and high-growth category – French’s Mustard and the other beloved products enables McCormick to become a one-stop shop for condiment, spice and seasoning needs, providing our customers and consumers with an even more diverse and complete flavour product offering. RB Foods’ track record of creating market-leading products and its dedicated state-of-the-art manufacturing facility are a strong complementary fit that we expect will strengthen McCormick’s business opportunities as we expand our presence in condiments, a core category for the company in the US and internationally.”
Kurzius continued: “This transaction reinforces our focus on growth, reflecting McCormick’s commitment to making every meal and moment better and driving significant shareholder value. We have great respect for RB Foods and the strong business its employees have built. McCormick will be able to grow these brands in new and unique ways through our proven track record of insight-driven innovation and the ability to leverage our global footprint. We are confident McCormick is the perfect home for RB Foods’ popular brands and employees.”
The transaction is expected to close in the third quarter.
© FoodBev Media Ltd 2019