Lawrence Kurzius, the president and CEO of McCormick & Co., today (29 March) insisted the portfolio of takeover target Premier Foods plc has brands that are “very complementary” to the US spices and seasonings group’s own range.
The McCormick chief faced questions on the company’s interest in Premier after publishing its results for the first quarter of its financial year. McCormick has had two proposed offers for Premier rejected in the past six weeks. The Lawry’s and Schwartz owner indicated on Thursday it could return with an improved bid should Premier grant it some due diligence.
Some industry watchers have questioned why McCormick would be interested in a Premier business generating the bulk of its sales from a portfolio largely focused on more mature categories in a fiercely competitive and price-driven UK grocery market.
Speaking to Kurzius on a conference call to discuss McCormick’s first-quarter numbers, Alexia Howard, an analyst at Sanford Bernstein, would see McCormick “moving out of your core spices and seasonings into more regular, slower-growth categories”. The UK, Howard suggested, “doesn’t strike me as a particularly attractive market”, while she argued a takeover of Premier would be “a break from the bolt-on acquisitions” McCormick has “done in the past”.
Kurzius said McCormick saw much of the Premier portfolio as “flavour businesses” that would fit the US group’s portfolio. “This business is it’s still predominantly a flavour business, with some terrific, iconic, flavour brands that are much-loved in the UK. Gordon [Stetz, CFO], Mike [Smith, senior vice president for corporate finance] and I have lived in the UK ourselves and know that brands like Oxo, Bisto, Saxa, Sharwood’s are fantastic brands, much-loved by UK consumers and are widely-consumed,” Kurzius said. “Our flavour portfolio on the consumer side is not just herbs, spices and seasonings. We have sauces in many parts of the world. We’ve launched cooking sauces in North America over the last few years. We see the brands in the Premier portfolio as being very complimentary to the flavour business that we have and are building globally.
“We are looking at a whole company so there are some brands that are not core to our business but I remind you we have a strong dessert business on the Continent through the B brand. A fairly good part of our US business is based on baking products anyway. We feel pretty good about the fit.”
In recent years, McCormick’s acquisition strategy has focused on smaller companies. In 2015, for example, McCormick snapped up US firm One World Foods, a deal that saw it take control of US barbecue sauce brand Stubb’s, for around US$100m in cash. In February 2015, McCormick also bought Italian spices and seasonings manufacturer Drogheria & Alimentari for US$97m.
McCormick’s most recent proposed offer for Premier valued the UK business at around US$2.2bn. The US group’s last acquisition above US$500m was its 2008 purchase of US seasonings business Lawry’s from Unilever for US$604m in cash.
Kurzius insisted McCormick was still able to continue to make smaller acquisitions even if the company succeeds in buying Premier. “Premier Foods is just one idea in McCormick’s robust acquisition pipeline,” he said. “It is bigger than the bolt-on acquisitions that we’ve done so many of. We’ve been signalling for several months now that we were going to look at some bigger opportunities, in addition to the bolt-on opportunity. This would use a fair bit of our financial capacity but it wouldn’t take us out of the market to do the strategically-important bolt-ons that we might have done otherwise.”
He added: “As far as the UK market goes, one of the things that we are interested in as part of our acquisition programme is adding scale where we already have a strong business presence. The UK is a market where we have a good presence with the Schwartz brand and have had for many years and have strong relationships with our customers. It is also the home of our EMEA business. Our EMEA regional headquarters is in the UK so we have substantial infrastructure and resources there to handle any asset like this.”