McCormick drops plans for European venture German antitrust objections blamed

November 19, 1993|By Kim Clark | Kim Clark,Staff Writer

McCormick & Co. said yesterday that it was abandoning its plan to form a European spice giant by buying Germany's largest seasoning maker and forming a joint venture with CPC International Inc., a huge food concern that makes Skippy peanut butter and Knorr soups.

McCormick said antitrust regulators in Germany had indicated informally that they wouldn't approve the plan to form European Spice Partners B.V.

The Sparks-based company, which commands half the U.S. spice market, said it has a small share of the German and European markets.

But New Jersey-based CPC is the third-largest spice seller in Germany. CPC and McCormick had planned to buy Karl Ostmann GmbH, which is Germany's biggest spice seller. Germans buy 40 percent of all the spices sold in the new European market.

Bailey A. Thomas, McCormick's chairman, said yesterday that he and CPC executives had hoped that the European Commission would approve their plan.

Although the planned venture would have been the largest spice operation in Europe, and twice as big as its nearest competitor, it was expected to command only about 15 percent of the EC's $1.4 billion-a-year retail spice market.

But Mr. Thomas said he knew the deal was in trouble early this month when the EC instead asked German antitrust regulators to rule on thecompetitive effects of the combination of the No. 1 and No. 3 spice companies in Germany.

The announcement is not expected to harm either company's earnings, but it does delay plans for international growth.

Mr. Thomas said he still plans to acquire other spice makers in Europe and attempt to expand sales on the continent. For example, he said, "nothing would prevent" McCormick from acquiring Ostmann without CPC's involvement.

But he said McCormick was also exploring other options. "We are going to be a long-term player" in Europe, Mr. Thomas said.

McCormick, through its Schwartz subsidiary, is the largest spice seller in the United Kingdom. It is also the second-largest spice company in Switzerland, and the third-largest in Spain, he said.

Mr. Thomas said he believes McCormick must buy existing spice companies in its target countries because spice sales don't provide the volume or the margin to finance the advertising required to establish a new brand name.

Analysts said the announcement was a minor setback for McCormick, but predicted the company will eventually take more share of the European markets because it has comparatively low costs.

"They are going to have to do it gradually, with smaller acquisitions," said Kurt Funderberg, a stock analyst for Ferris, Baker Watts in Baltimore. "They have the cost advantage, so it is just a matter of time."

McCormick, CPC, and Rabobank Nederland, a major Dutch bank, announced plans to form a joint venture Sept. 8. It was to have combined the existing retail and catering herb and spice business of McCormick and CPC in Europe. McCormick's stock fell 12.5 cents in Nasdaq trading yesterday, to close at $23.125.

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