The sale will include the French’s, Frank’s RedHot and Cattlemen’s brands. The agreed price is $4.2 billion on a cash-free, debt-free basis. RB says the move follows a comprehensive strategic review of French’s Food.
The valuation achieved reflects the quality of this highly profitable, growth business, says RB, which includes the Durex name in its sprawling stable of household brand names.
Great brands and passionate people
Rakesh Kapoor, chief executive officer of RB, described the French’s Food business as a true reflection of RB’s strengths – a portfolio of great brands driven through a culture of innovation by passionate people.
Following the purchase of Mead Johnson Nutrition earlier this year, the transaction marks another step towards transforming RB into a global leader in consumer health and hygiene, he added.
The consideration is subject to customary working capital adjustments at completion. RB intends to use the net proceeds to reduce its debt. The deal is subject to regulatory approvals. Completion is expected during the third quarter of this year.
Class 2 transaction
The transaction constitutes a class 2 transaction for the purposes of the UK Listing Rules. Global professional services firm PwC defines this as a transaction by a listed company where any of a set of key ratios is 5% or more but each is less than 25%.
The requirement for a Class 2 transaction is the notification of the particulars of the transaction and certain other information to the London Stock Exchange but no explanatory circular is required.
McCormick says the acquisition of market-leading products strengthens its leadership in the condiments category and advances its vision to Bring the Joy of Flavor to Life (sic).
McCormick, which in 2016 failed to clinch the purchase of the UK's Premier Foods, says it will integrate RB Foods into its consumer and industrial segments. It adds that it will keep the French's, Frank's RedHot and Cattlemen's brand names.
Lawrence E Kurzius, McCormick's chairman, president and CEO, said that RB Foods' track record of creating market-leading products and its dedicated state-of-the-art manufacturing facility are a strong complementary fit.
He expects this will strengthen McCormick's business opportunities as it expands.
McCormick believes combining RB's powerful brands will
- Drive significant shareholder value
- Enhance its scale
- Increase growth through the expansion of its portfolio and consumer base
- Drive branded food service within its industrial segment
- Leverage its global scale
- Realise significant cost synergy opportunities (ie sack people)
- Generate margin expansion (ie increase prices and cut costs)
McCormick says that it has obtained committed bridge financing and expects to finance the transaction permanently through a combination of debt and equity.
Upon closing of the acquisition, McCormick's leverage ratio will increase. The company says it is committed to maintaining an investment grade credit rating and returning to its current credit profile over the longer term.
McCormick says it will
- Maintain its dividend policy
- Curtail its share repurchase programme
- Deleverage the balance sheet with anticipated strong cash flow generation
Credit Suisse and Cleary Gottlieb Steen & Hamilton LLP are serving respectively as McCormick's financial adviser and legal counsel.
Morgan Stanley is lead adviser to RB. Additional advice comes from Robey Warshaw, a boutique investment bank based in the highly prestigious location of St James's Place, London.