McCormick to buy Reckitt's food biz for $4.2 bn

The deal comes as speculation swirls about the next round of consolidation in the packaged-food business
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McCormick & Co is acquiring Reckitt Benckiser Group Plc’s food business for $4.2 billion, adding French’s mustard and Frank’s RedHot sauce to its line-up of spices and seasonings.

The deal brings a stable of well-known condiments to McCormick. For Reckitt Benckiser, unloading the products continues an overhaul that began with an expansion into baby formula through the British company’s acquisition of Mead Johnson Nutrition Co for $16.6 billion.

The transaction price equates to 20 times the division’s earnings before interest, tax, depreciation and amortisation, “which feels to us like a very high price for a US-oriented ambient food business,” James Edwardes Jones, an analyst at RBC Capital Markets, wrote in a note. He expects the transaction to dilute RB’s earnings per share by about 1 per cent.

McCormick shares dropped 0.1 per cent in New York Tuesday before the announcement and have gained about 4 per cent this year. Reckitt Benckiser stock rose 2 per cent early Wednesday in London, extending its increase for the year to 16 per cent.

The deal comes as speculation swirls about the next round of consolidation in the packaged-food business. In February, Kraft Heinz Co was spurned in a blockbuster bid to take over Unilever, the British-Dutch maker of Hellmann’s mayonnaise and Knorr soup. In the aftermath, Unilever was cited by analysts as a possible bidder for the Reckitt business.

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