Unilever and Hormel Foods are reportedly leading the pack in the race to acquire the food business of UK-listed FMCG group Reckitt Benckiser. 

According to a report in The Sunday Times yesterday (16 July), Unilever and Hormel are front-runners in a sale process expected to value the business in the region of GBP2.2bn (US$2.9bn). 

Reckitt Benckiser announced in April it was considering the future of its food division, which includes mustard brand French’s and Frank’s RedHot sauce. The unit generates the majority of its sales in the US. Revenues totalled GBP411m and EBIT stood at GBP118m in fiscal 2016.

At the time, potential interested parties were also said to include US groups McCormick & Co., Conagra Brands, Pinnacle Foods and Campbell Soup Co. 

Responding to yesterday’s report, Sanford Bernstein analyst Andrew Wood said that he believes the business “would be interesting for a number of US companies”. However, Wood said that he would be “surprised” and “disappointed” if Unilever were to pursue the acquisition. 

“The acquisition would be margin accretive and, almost certainly, EPS accretive…but it would be organic growth and ROIC dilutive. Most importantly, it would be strategically odd. Unilever’s focus on the emerging markets and home and personal care – and its strategic evolution from food to HPC – has resonated well with investors and has led to the disposal of a number of food brands. The acquisition of French’s/Frank’s would contradict these recent moves and would be dilutive to the emerging market focus and to the move into HPC.”

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Karel Zoete, an equities analyst with Kepler Cheuvreux, disagrees, however. According to Zoete’s assessment, the acquisition would be a “sound” strategic fit for Unilever, which owns various condiments brands. 

“Unilever is a global leader in the sauces and mayonnaise business, with its large brands like Hellmann’s generating sales of c. EUR1.3-1.5bn annually, but also with more local and premium mustard brands like Coleman’s and Maille. Hence, the business overlap is good, and it also improves the scale of Unilever’s foods business in the US, which suffered from numerous disposals of non-core assets,” Zoete wrote in an investor note. 

Unilever declined to comment on “market speculation” and just-food was unable to reach representatives for Hormel at time of press. 

Reckitt Benckiser recently completed the acquisition of infant formula business Mead Johnson.

just-food analysis from April 2017: Which companies could be eyeing up Reckitt Benckiser’s condiments?