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LONDON, UK / ACCESSWIRE / July 21, 2017 / Pro-Trader Daily takes a look at the latest corporate events and news making the headlines for Sparks based US spice maker, McCormick & Co., Inc. (NYSE: MKC), following which we have published a free report that can be viewed by signing up at http://protraderdaily.com/optin/'symbol=MKC. The Company announced on July 18, 2017, that it has entered into an agreement to acquire Reckitt Benckiser's Food Division ("RB Foods") from Reckitt Benckiser Group PLC ("RB"), for $4.2 billion. RB Foods is a leader in the growing US Condiments market, with a portfolio of iconic brands. For immediate access to our complimentary reports, including today's coverage, register for free now at:
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The transaction is subject to certain customary closing and approval by regulatory bodies and is expected to close in Q3 or Q4 of fiscal 2017. McCormick will integrate RB Foods into its Consumer and Industrial segments and will retain the brand names of French's, Frank's RedHot, and Cattlemen's.
Background
Following the $16.6 billion purchase of baby formula maker Mead Johnson, London-listed Reckitt was reviewing options for its French's mustard and Frank's RedHot sauce unit, in order to cut debt.
McCormick fought intense competition, including Unilever and Hormel Food, to acquire RB Foods, resulting in the addition of French's mustard and Frank's RedHot brands to its portfolio. Other possible bidders may have included Post Holdings Inc., ConagraBrands Inc., JM Smucker Co., Campbell Soup Co., Pinnacle Foods Inc., and Ajinomoto Co.
McCormick acquired Enrico Giotti SpA, a privately held company headquartered in Florence, Italy, for $127 million in 2016. The Company rejected a $770 million offer to buy British food maker Premier Foods PLC in April 2016.
Offering Customers More Diverse Flavor Product Offering
Commenting on the acquisition, Lawrence E. Kurzius, Chairman, President and Chief Executive Officer of McCormick, stated:
"RB Foods' focus on creating products with simple, high-quality ingredients makes it a perfect match for McCormick as we continue to capitalize on the growing consumer interest in healthy, flavorful eating."
The Company's management believes that the addition of Frank's RedHot Hot Sauce, French's Mustard, and other products enable McCormick to become a one-stop shop for condiment, spice and seasoning needs, providing its customers and consumers with an even more diverse and complete flavor product offering.
Other Benefits Enjoyed by McCormick
With the addition of French's mustard and Frank's RedHot brands to the portfolio, the acquisition has resulted in the strengthening of McCormick's flavor leadership, thereby making them the Company's number two and number three brands, respectively. McCormick expects the acquisition will drive significant shareholder value.
The deal has helped McCormick to proceed from its current position of #10 to a leading position in US Condiments category, and provide a leadership position in the advantaged Hot Sauce Category with Frank's RedHot, the #1 brand in the US and Canada.
McCormick plans to expand the global presence of Frank's RedHot and French's products by leveraging its international infrastructure, whose sales are currently concentrated in the US. The deal will allow Reckitt to focus more on its consumer health and home brands, including Durex condoms, and Mucinex cold medicine.
Financial Implications of the Acquisition
The deal is expected to create a combined group with annual sales of around $5 billion, the majority of which will be achieved by 2020. Significant accretion to margins and adjusted EPS is also anticipated.
The deal is expected to reduce Reckitt's net debt to EBITDA ratio to 3.3 times from 4.1 times. McCormick has obtained committed bridge financing and the transaction will be a combination of debt and equity.
Following the completion of the acquisition, McCormick's leverage ratio is expected to increase, but the Company will maintain an investment grade credit rating and return to its current credit profile over the longer term. McCormick will maintain its dividend policy, curtail its share repurchase program, and will deleverage the balance sheet with anticipated strong cash flow generation.
Analysts argue that the deal price equates to almost 20 times the division's earnings before interest, tax, depreciation, and amortization, which feels like a very high price for a US-oriented ambient food business. The deal is expected to dilute RB's earnings per share by about 1%.
Following the announcement, McCormick's stock fell as much as 7.1% to $90.25, its biggest intraday decline in more than three years, recovering slightly and closing the trading session on July 19 at $92.07, down by 5.22%.
Financial and Legal Advisors
Credit Suisse served as the financial advisor to McCormick. Cleary Gottlieb Steen & Hamilton LLP provided legal advice to the Company. Morgan Stanley and Robey Warshaw served as the financial advisors to Reckitt.
About McCormick & Co. Inc.
Founded in 1889 by Willoughby M. McCormick, McCormick & Co., Inc. manufactures, markets and distributes spices, seasoning mixes, condiments, and other flavorful products to the retail outlets, food manufacturers, and foodservice businesses. The company operates its business through two segments: Consumer and Industrial. From locations around the world, McCormick's brands reach consumers in approximately 150 countries and territories.
Last Close Stock Review
On Thursday, July 20, 2017, McCormick's stock closed the trading session at $92.48, marginally up 0.45% from its previous closing price of $92.07. A total volume of 1.85 million shares was exchanged during the session, which was above the 3-month average volume of 667.55 thousand shares. Shares of the Company have a PE ratio of 24.58 and have a dividend yield of 2.03%. The stock currently has a market cap of $11.46 billion.
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