Sector News

Reckitt cuts the mustard with $4.2 billion food business sale

July 19, 2017
Food & Drink

U.S. spices maker McCormick & Co Inc has agreed to buy Reckitt Benckiser Group’s food business for a higher-than-expected $4.2 billion to give it a wider variety of seasonings and sauces.

London-listed Reckitt said in April it was reviewing options for the unit, which includes French’s mustard and Frank’s RedHot sauce, to cut its debt following the $16.6 billion purchase of baby formula maker Mead Johnson. That acquisition added a new product line and boosted its business in developing markets and the United States.

The sale, announced late on Tuesday, will reduce Reckitt’s net debt to EBITDA ratio to 3.3 times from 4.1 times. It will also enable it to focus more closely on its consumer health and home brands, which include Durex condoms and Mucinex cold medicine.

It gives McCormick, the maker of Lawry’s, Old Bay and Billy Bee honey, a leading position in the U.S. condiments category.

At $4.2 billion, the price represents a multiple of more than 7 times the annual sales from the business and 20 times its earnings before interest, tax, depreciation and amortization.

That is much higher than the long-term average of major deals in the sector, which Bernstein analysts say is 3.3 times sales and 16.2 times EBITDA.

Sources had previously estimated that the business, which attracted interest from several other U.S. players, would fetch more than $3 billion.

RBC Capital Markets analysts said it “feels to us like a very high price for a US oriented ambient food business”.

Morgan Stanley analysts said the high price tag confirmed the value placed on unique assets like French’s, which is the world’s leading mustard brand.

Reckitt shares were up 1.3 percent at 0830 GMT.

McCormick, which expects the hot sauce category to continue seeing robust growth, has been trying to expand.

Last year it approached Premier Foods, the owner of British food brands including Mr Kipling cakes and Oxo stock cubes, but was rebuffed.

With this deal, McCormick expects to achieve “meaningful accretion” to margins and adjusted earnings per share, excluding transaction and integration costs. It expects cost synergies of about $50 million, most of which by 2020.

The combined entity’s 2017 pro forma net sales are expected to be about $5 billion, McCormick said.

Credit Suisse advised McCormick on the deal, while Morgan Stanley advised Reckitt.

By Sangameswaran S and Martinne Geller

Source: Reuters

comments closed

Related News

November 19, 2022

Cultivated meat revolution changes gear as FDA gives “historic” nod to cell-based chicken in US

Food & Drink

Upside Foods has become the first company in the world to receive a “No Questions” letter from the US Food and Drug Administration (FDA) for cultivated meat, poultry or seafood, which means the government food agency accepts Upside’s conclusion that its cultivated chicken is safe to eat.

November 19, 2022

Technomic predicts rise in in-person dining for 2023

Food & Drink

While inflation and heightened interest rates have created the threat of a possible recession, Technomic’s first trend predicts the impact on the foodservice industry to be relatively mild. The company estimates rising grocery prices will help close the value gap between dining at home or at a restaurant, incentivizing consumers to eat out.

November 19, 2022

Oatly reorganizing as losses mount

Food & Drink

A week after Beyond Meat, Inc., said it was pivoting to improve company performance, Oatly Group AB announced its own pivot. Following weak third-quarter results, the company is shifting to a “hybrid” manufacturing model and reducing costs in its Europe, Middle East and Africa (EMEA) region through cost and headcount reductions.