Reckitt Benckiser agrees USD4.2bn sale of food business to McCormick

Reckitt Benckiser has agreed to sell its food business for $4.2bn (£3.2bn) to Schwartz spices owner McCormick.

In April Reckitt's chief executive Rakesh Kapoor kicked off a “strategic review” of its non-core food business, with analysts expecting a price nearer £2.2bn for a business that contains French's mustard and Frank's Red Hot brands.

Reckitt intends to use the net proceeds to reduce net debt, which at the end of December was £1.39bn.

On Wednesday morning, with McCorick having confirmed the deal overnight, Kapoor said: "Our French's Food business is a true reflection of RB's strengths - a portfolio of great brands driven through a culture of innovation by passionate people to deliver consistent outperformance."

Following the acquisition of Mead Johnson's baby food business, he said the French's sale "marks another step towards transforming RB into a global leader in consumer health and hygiene".

McCormick chairman and chief executive officer Lawrence Kurzius said: “The acquisition of RB Foods strengthens McCormick’s flavour 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.”

Broker Shore Capital said the £3.2bn consideration reflects an attractive EV/EBIT multiple of circa 25 times, which compares favourably with the broader Reckitt’s group multiple of 20.2 times.

On a PER basis, assuming a tax rate of 35% given its largely US focus, the valuation look to be circa 38 times, analysts said, a "very attractive valuation".

ShoreCap's initial analysis suggested forecast year-end leverage will fall from 3.0x to circa 2.3x if the deal is completed during the year as expected.