News: Seasoning's Greetings for McCormick
The Sparks-based spice maker said that it agreed to pay Unilever PLC $605 million in cash for the Lawry's business, about four times Lawry's annual sales of $150 million. The sale includes inventory but not manufacturing operations. The deal, which is subject to federal regulatory approval, should immediately contribute to earnings when it closes in 2008, McCormick, said.
McCormick chief executive officer Robert J. Lawless said the product lines will be manufactured in Hunt Valley, Md., which could yield new jobs if McCormick is successful in expanding the brands.
"This would be one of the most sought-after brands on our acquisition list over the last 11 years," said Lawless, who is scheduled to retire January 1 after a decade in the head office. He will become non-executive chairman.
About 65% of Lawry's sales are seasoning blends sold under the Lawry's and Adolph's brands at grocery stores and other retail outlets. Another 23% of sales are Lawry's wet marinades. The remaining sales are to foodservice customers.
The Lawry's purchase fits McCormick's strategy of buying well-known brands that aim to make customers' lives easier by simplifying the cooking process and adding flavor.
In 2003, McCormick bought Zatarain's, a brand of Louisiana-style food mixes, spices and flavorings. Last year, it picked up the Thai Kitchen and Simply Asia brands of ready-to-make meal kits.
For the same reason, Lawless said he has been wanting to venture further into the wet marinade market. McCormick plans to take Lawry's and Adolph's products into its test kitchen and create new offerings.
Lawless has been courting the Lawry's business ever since he took over the chief executive role, but it took until now for Netherlands-based Unilever to commit. The manufacturer of Dove soap and Knorr soup mixes is selling assets to cut costs and streamline its offerings. A week ago, it announced a deal to sell its Boursin line of cheese to French-owned Le Groupe Bel for $587 million. In August, Unilever announced that it would eliminate 20,000 jobs, or about 11% of its work force, over the next four years.
McCormick is just wrapping up its own restructuring, which included closing factories and eliminating between 800 and 1,000 jobs. A little more than 2,000 of McCormick's 7,500 workers are in Maryland.
McCormick plans to pay for the deal with cash from operations, committed bank lines and commercial paper borrowings.
Standard & Poor's placed a negative credit watch on the company after announcement of the deal.
"We assume most of the acquisition will be debt-financed, and that credit measures will weaken below current levels and not meet our prior expectations," said credit analyst Alison Sullivan in a statement.
Lawless said he is not concerned about the company being able to finance the deal and that a similar rating was placed on McCormick after it bought the French-based Ducros brands in 2000.
Analyst Ann Gilpin of Morningstar Inc. said the purchase price was "steep," but it is a profitable business with attractive margins. "This basically eliminates one of the bigger competitors for McCormick," said Gilpin, who is not allowed to own shares in the companies she covers or their competitors.
She said McCormick may also be interested in the A.1. steak sauce and Grey Poupon mustard brands being shopped by Kraft.
From the November 19, 2007, Prepared Foods e-Flash