USA spice maker McCormick & Company has bought Reckitt Benckiser's food business in a $4.2 billion cash deal that it regards as a "perfect match".
The transaction price equated 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 to investors.
"The acquisition of RB Foods strengthens McCormick's flavor leadership with the addition of the iconic French's and Frank's RedHot brands to our portfolio, which will become our number two and number three brands, respectively", said McCormick President and CEO Lawrence E. Kurzius in a statement.
Hong Kong developer Chinese Estates Holdings said it had accumulated 5 percent shares of China Evergrande Group since April in the open market, for a total consideration of HK$8.1 billion ($1.04 billion). This is significantly higher than the £2.2 billion expected in the City.
McCormick anticipates that the hot sauce category will continue to see robust growth, and with insight-driven innovation and a passionate and increasing fan base, there are significant opportunities for expansion.
"RB Foods' track record of creating market-leading products and its dedicated state-of-the-art manufacturing facility are a strong complementary fit that we expect will strengthen McCormick's business opportunities as we expand our presence in condiments; a core category for the company in the USA and internationally". Hormel Foods (HRL) and Birds Eyes Pinnacle Foods (PF) were also said to be bidders in a Sunday Times article on July 16.
Credit Suisse is advising McCormick on the deal, while Cleary Gottlieb Steen & Hamilton LLP is the legal counsel. McCormick plans to fund the deal with a combination of equity and debt, and said it has obtained committed bridge financing.
Subject to regulatory approvals, the deal is expected to complete during the third quarter of 2017.