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LONDON (AP) — U.S. spice maker McCormick & Company has bought Reckitt Benckiser's food business for $4.2 billion in cash, in a deal it regards as a "perfect match" but that some investors think may be a bit too pricey.
The Sparks, Maryland-based company fought off rival bidders to purchase the business that makes French's mustard and Frank's RedHot brands. The deal, disclosed on the London Stock Exchange on Wednesday, will create a combined group with annual sales of around $5 billion. French's and Frank RedHot brands will become McCormick's number two and number three brands, respectively.
"RB Foods' focus on creating products with simple, high-quality ingredients makes it a perfect match for McCormick as we continue to capitalize on the growing consumer interest in healthy, flavorful eating," said Lawrence E. Kurzius, McCormick's CEO.
The deal is part of RB's strategy to re-focus on consumer health and hygiene products after it bought U.S. baby formula maker Mead Johnson. The company's brands include Nurofen, Woolite and Clearasil.
"This transaction marks another step towards transforming RB into a global leader in consumer health and hygiene," said Rakesh Kapoor, CEO of RB.
Reckitt's food business is headquartered in Chester, New Jersey. The company employs 450, including some 360 in Springfield, Missouri.
McCormick has said it wants to strip out around $50 million in cost "synergies" after the takeover, the majority of which would be achieved by 2020.
Major U.S. food companies have been looking for ways to offset slow sales growth.
The deals have included acquisitions of smaller, faster-growing brands or merging with companies that allow for cost-cutting through the combination of manufacturing and distribution lines. The latter was one of the reasons cited for Heinz's acquisition of Kraft in 2015.
"McCormick's acquisition of Reckitt's food arm brings the company very close to Kraft Heinz's leadership position in sauces, dressings and condiments in the U.S., with now just two percentage point difference in share," said Lianne van den Bos, senior food analyst at Euromonitor International.
She said the deal offers "plenty of opportunities" for McCormick to get costs down and increase profits, "a key focus area for many multinationals this year especially within staple foods."
That said, she said the price seems "a hefty premium" for a business that generated $338 million worth of sales of sauces, dressings and condiments in 2016.
The market reaction suggests that investors think McCormick may have paid too-high a price. While Reckitt Beckinser's share price closed up 1.6 percent at 79.37 pence, McCormick's share price was 5.6 percent lower at $91.75 in early-afternoon trading in New York.
Candice Choi contributed to this story.