McCormick & Co. said Wednesday that it has agreed to acquire the food division of Reckitt Benckiser for $4.2 billion, the latest in a string of big consumer packaged goods mergers.
The deal will bring iconic brands including Frank’s RedHot and French’s Mustard to McCormick’s stable of condiments, moving it from No. 10 worldwide to a leading position in that category, where Frank’s and French’s are the respective top brands in the U.S. and Canada, Sparks, Md.-based McCormick said.
McCormick CEO Lawrence Kurzius had made little secret of his intention to expand the condiment business, telling analysts earlier this year that category was “core to its business,” although recent reports suggested Unilever and Hormel may have also been suitors.
The agreement also continues a string of high-profile moves among CPG giants as they seek scale, specialization and brand strength to meet ongoing challenges of slowing growth in center store. United Kingdom-based Reckitt was looking to sell its food business in part to fund its own recent acquisition of Mead Johnson Nutrition as Reckitt stakes out a position in health and hygiene, Rakesh Kapoor, CEO, said.
Strategic Resource Group Managing Director Burt P. Flickinger III called the deal a “masterstroke” for McCormick and predicted retailers would also benefit as McCormick capitalizes on its ability to drive condiment growth in association with its stable of spices and seasonings, providing a new challenge to Kraft Heinz.
Investors appeared to be wary of the price in the meantime as McCormick stock was down by more than 5% early Wednesday.
“Everyone’s saying they’re paying a premium price, but Lawrence Kurzius is such a genius at marketing, merchandising, brand-building and developing new categories,” Flickinger said. “He can take a category like French’s mustard that has been under-marketed and undersold for a century and turn it into a brand powerhouse. Instead of a routine category he will make it a destination category across condiments, spices and snacks.
“Instead of making this a Memorial Day to Labor Day, hotdogs and hamburgers story, McCormick will make French’s and Frank’s and the complementary products relevant every week of the year and really dive profitable sales growth for retailers,” Flickinger added.
The deal also brings with it McCormick Cattlemen’s barbeque sauce, a leading foodservice brand that will increase the company’s U.S. and Canada foodservice sales by 50%.