Reckitt Benckiser sells food business to US giant McCormick for $4.2bn

The ASA received a number of complaints after the advert was broadcast (Rex Features)

US spice maker McCormick will buy the food business of consumer goods conglomerate Reckitt Benckiser for $4.2bn (£3.2bn) to expand its footprint in the condiments category.

McCormick expects the hot sauce category will continue to see robust growth and said it would integrate the business, RB Foods, into its consumer and industrial segments, and retain the top brand names like French's, Frank's RedHot and Cattlemen's.

McCormick has been trying to expand its global presence. Last year it approached Premier Foods, the owner of food brands like Mr Kipling cakes and Oxo stock cubes. Premier rejected a twice-improved 65 pence-per-share takeover offer.

With the deal, McCormick expects to achieve “meaningful accretion” to margins and adjusted earnings per share, excluding transaction and integration costs. It expects cost synergies of about $50m, most of which by 2020.

The combined entity's 2017 pro forma net sales are expected to be about $5bn, McCormick said.

Reckitt, who also manufacture Neurofen and Durex condoms, said the deal was on a cash free, debt-free basis, and it would use the proceeds from the sale to reduce its debt.

In April, Reckitt said it was reviewing strategic options for its small food business as it seeks to pay down debt following its planned $16.6bn purchase of Mead Johnson.

Earlier in February, it acquired baby formula maker Mead Johnson, in a surprise deal that gave it a new product line and boosted its business in developing markets.

Credit Suisse is advising McCormick on the deal, while Cleary Gottlieb Steen & Hamilton LLP is the legal counsel.

Reuters