McCormick & Co., Inc. (NYSE: MKC) agreed to acquire Reckitt Benckiser Group Plc’s food business for $4.2 billion and also adding Frank’s RedHot sauce and French’s mustard to its lineup of seasonings and spices. This transaction price is 20 times the division’s earnings before interest, tax, depreciation, and amortization.
On Wednesday, McCormick’s stock dropped 7.1 percent to $90.25 which is the biggest decline in more than 3 years. However, Reckitt Benckiser’s stock increased 1.4 percent in London, extending their increase for the year to about 15 percent.
In April, Reckitt Benckiser was looking to expand their food business with 411 million pounds ($536 million) in sales last year where French’s Foods accounted for 4 percent of their total revenue. French’s and Frank’s RedHot will become McCormick’s second and third largest brands with 2017 expected annual net sales to total to about $5 billion. Hot sauce as well as yellow mustard, ketchup, onion flavorings, and other products are expected to continue to expand the global presence of Frank’s RedHot and French’s products which whole sales are now concentrated in the U.S.
The deal is expected to be completed in the third or fourth quarter of McCormick’s fiscal 2017 as they plan to fund the deal with equity and debt and plans to obtain committed bridge financing.