Reckitt Benckiser, which earlier this year announced plans to acquire the Mead Johnson Nutrition Co. for $17.9 billion, is considering a sale of its food business to help pay down debt.
Reckitt’s food business includes French’s mustard and Frank’s Red Hot Sauce. The business is valued at approximately 3 billion, according to The Sunday Times.
In an April 3 research report, Credit Suisse said Reckitt’s food business — which generates about $580 million in sales and $165 million in operating profit — may be “a perfect fit” for Baltimore-based McCormick & Co.
“McCormick’s premium stock price and its ability to generate synergies would give it more buying power than competing bidders,” Robert Moskow, research analyst with Credit Suisse, wrote in the report. “Plus the management teams know each other. Synergies would be maybe 3% of sales if the transaction comes with just supply chain assets and no administrative overhead. Even if just 3% synergies, and even if McCormick financed half of the transaction with stock, an acquisition would still be something like 20c to 30c per share on an earnings base of $3.70.”
Mr. Moskow said a potential purchase of Reckitt’s food business is reminiscent of McCormick’s $600 million acquisition of the Lawry’s brand from Unilever in 2007.
“That transaction generated roughly 12c of accretion and sent the stock up 8% when it was announced,” he said. “We look forward to hearing more from McCormick management on how it views this possibility with Reckitt at its investor day Tuesday, April 4.”