The American owner of Schwartz spices has agreed to buy Reckitt Benckiser’s food business for $4.2 billion, it emerged last night.
Sources confirmed the move, which at about £3.2 billion was at a significantly higher price than the £2.2 billion deal the City had been expecting.
Moreover, McCormick & Company had been only an outside bet to win the race for the consumer goods group’s foods division. It appears to have shrugged off competition from Unilever, the Anglo-Dutch conglomerate that owns Persil and Ben and Jerry’s, Hormel Foods, a New York-listed company that owns Spam, and Pinnacle Foods, the owner of Birds Eye.
The sale in itself was not a surprise. Reckitt has been keen for some time to offload its foods business, which is home to brands including French’s mustard and Frank’s Red Hot sauces. Its sales increased by 5 per cent last year, but profit margins have been narrowing and offloading the business will help Reckitt to pay off debt used to finance its own $18 billion takeover of Mead Johnson, the baby food maker.
Food accounted for only 4 per cent of the FTSE 100 group’s annual sales of £9.9 billion last year and has long been deemed “non-core” to Reckitt’s business, which also includes brands such as Durex condoms and Nurofen painkillers. The foods unit operates as a standalone division within its “portfolio” unit, which comprises other non-strategic brands, including some laundry and fabric softeners.
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City analysts have said that a sale, confirmation of which was first reported by the Financial Times last night, may act as precursor to Reckitt selling its homecare division, which includes brands such as Calgon, Air Wick fresheners and Vanish laundry stain remover. It is believed to be worth between £6 billion and £7 billion.
This month Reckitt trimmed its sales forecasts, becoming one of the first companies to put a cost on a global cyberattack in June that disrupted its manufacturing and distribution, leaving it unable to ship and invoice some orders.
McCormick recently failed with a £537 million takeover approach for Premier Foods, the maker of Mr Kipling cakes, which Premier was “inadequate”.