McCormick & Co. has struck a deal to buy Reckitt Benckiser’s food division in a transaction valuing the French’s and Frank’s RedHot sauces business at US$4.2bn.
Lawrence Kurzius, McCormick’s chairman, president and CEO, said the Reckitt Benckiser unit is “a perfect match” for the US-based spices and sauces supplier, which owns brands including Lawry’s and Stubb’s.
Reckitt Benckiser’s food arm, which does not include the recently-acquired US-based infant formula business Mead Johnson, generated net revenue of GBP411m (US$535.7m) in 2016, which represented a 5% increase in like-for-like sales.
The division’s adjusted EBIT stood at GBP118m, with operating margins at 28.7%, down 0.5% on 2015 as Reckitt Benckiser decided to, according to its 2016 annual report, “invest for growth and international expansion”.
The UK-based consumer goods giant announced in April it was considering the future of its food division, which it described as “non-core”. A report last weekend in The Sunday Times claimed Unilever and US group Hormel Foods were leading the race to buy the business.
In a statement issued this morning (UK time), Kurzius said: “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.”
McCormick expects the hot sauce category will “continue to see robust growth” and said there are “significant opportunities” to expand that side of the Reckitt Benckiser business.
The company said the deal would boost the sales its industrial division makes to foodservice suppliers by more than 50% in the US and Canada.
McCormick said it would use its “international infrastructure” to “significantly expand the global presence” of Frank’s RedHot and French’s, which it expects to lead to “substantial growth and increased household penetration”.
The transaction is expected to lead to cost synergies of around $50m, McCormick said. The company said the majority of the savings would be achieved by 2020, across selling, general and administrative expenses and cost of goods sold.
McCormick expects to see “meaningful accretion” to its margins and adjusted earnings per share, excluding transaction and integration costs, from the deal.
The transaction, which is subject to customary closing conditions, including regulatory approvals, is expected to be completed in the third or fourth quarter of McCormick’s fiscal 2017 year.