McCormick eyes market in Europe New venture to create large spice operation

September 09, 1993|By Ross Hetrick | Ross Hetrick,Staff Writer

McCormick & Co. Inc. announced yesterday that it was part of a group formed to buy a German spice company, creating the largest spice and herb operation in Europe with annual sales of $200 million.

The plan, which must be approved by the Commission of the European Communities, fulfills McCormick's ambition of establishing a strong presence in Germany and other European countries, with a beachhead to enter the Eastern European market.

"The intention is to go forward and solidify our operation and then to look for opportunities going forward," said Donald A. Palumbo, vice president and treasurer of McCormick, which is based in Sparks.

McCormick said it would form a joint venture with CPC International Inc. of Inglewood Cliffs, N.J., which is an international food company, and the Rabobank Nederland, the largest bank in The Netherlands.

The new venture, to be called European Spice Partners B.V., would combine the European spice and herb operations of McCormick and CPC. The group also plans to buy Karl Ostmann, GMbH & Co. KG of Bielefeld, Germany, a herb and spice manufacturer and marketer. The companies would not disclose the purchase price for Ostmann.

With operations in England, Ireland, Germany and Switzerland, the joint venture would be the largest spice and herb company in Europe -- more than twice the size in sales of its nearest competitor, Ducros of France, according to Konrad Schlatter, chief financial officer for CPC.

McCormick decided to form the joint venture rather than acquire a company directly because it was "a way to develop a significant presence in a relatively low-risk and low-cost basis," Mr. Palumbo said.

He said the joint venture would benefit from McCormick's worldwide supply network while CPC had an extensive marketing structure in Europe. Rabobank would contribute its financial expertise, he said.

McCormick and CPC would each have a 37.5 percent voting share of the joint venture's stock, with Rabobank owning the remaining 25 percent.

The group's estimate of an initial $200 million in sales includes CPC operations that generate about $50 million in revenue, McCormick facilities with about $60 million in sales and $90 million from Ostmann, according to a CPC spokeswoman.

CPC and Rabobank are also contributing cash to the joint venture, while McCormick and CPC are contributing plants and equipment. The companies declined to provide the value of the assets contributed.

For several months, McCormick, the world's largest spice company, has said it was looking for a German acquisition to expand its European market. In recent years, the company has moved to strengthen its international operations, which account for 21.5 percent of the company's $1.5 billion in annual sales.

The stock market reacted favorably to yesterday's announcement, pushing McCormick stock up 50 cents a share to $23. CPC stock drifted down 25 cents to $44.75, but this might have been the result to the general drop in the market, said David S. Liebowitz, senior vice president for Republic New York Securities Corp., a brokerage in New York.

"Being allied with CPC and other partners creates a very powerful marketing force," Mr. Liebowitz said. The arrangement should have a "very positive contribution" to McCormick's long-term profits, he said.

CPC, which had sales of $6.7 billion last year, makes such products as Hellmann's and Best Foods mayonnaise, Mazola corn oil and margarine, Skippy peanut butter, Thomas' English muffins, Arnold breads, Mueller's pasta products, Karo and Golden Griddle syrups and Knorr sauces, soups and bouillons.

About 60 percent of CPC's sales are from foreign operations.

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