Spice giant lightens portfolio McCormick sells two properties, will buy back stock

August 30, 1996|By Sean Somerville | Sean Somerville,SUN STAFF

In two moves welcomed by Wall Street, McCormick & Co. Inc. yesterday said that it received $257 million for two California properties and announced a plan to buy back up to 10 million shares of stock.

The Sparks spice giant last spring announced transactions to sell Gilroy Foods Inc. -- its garlic and onion dehydration business -- and a companion co-generation plant. Officials said yesterday that the after-tax proceeds from the sales of the properties will be about $230 million.

Charles P. McCormick Jr., chairman and chief executive, said the company would use a portion of that money for a repurchase program to buy back shares of the company's stock "from time to time" in the open market.

"It is in keeping with our stated objective of increasing shareholder value and reflects management's confidence in the future of the business," he said in a statement.

McCormick shares closed yesterday at $20.3125, up $1.125. The company's stock has fallen 23 percent since last Oct. 17, when it HTC hit a 52-week high of $26.625.

Kurt Funderburg, a Baltimore-based analyst with Ferris, Baker Watts Inc., called the buy-back plan "a pleasant surprise."

He said the company's plans to buy up to 10 million shares, roughly 12 percent of its outstanding stock, bodes well for stockholders.

"It's something we haven't seen a whole lot of from McCormick," Funderburg said. "It does express that management has a new confidence in the business. And if you buy 12 percent, it puts a solid floor under the stock."

In its announcement, the company said it had completed a 2 million-share repurchase program that it began in 1993.

Shedding the two California divisions, which accounted for about 13 percent of McCormick's $1.9 billion annual sales, is aimed at helping the company lift stagnant earnings by focusing on high-performing divisions.

In June, McCormick said it would spend $60 million to close product lines, sell businesses and close a New York City packaging plant that employed about 100 people.

ConAgra Inc. of Omaha, Neb., said it paid $132 million for Gilroy Foods. Calpine Corp. of San Jose, Calif., said it paid $125 million for the co-generation plant.

Christopher J. Kurtzman, vice president and treasurer of McCormick, said the company was not seeking a buyer for Gilroy Foods until ConAgra approached the company.

"Their rationale is that they knew how to run an agriculture business, that it fit better in their portfolio than ours," he said. "We came to the conclusion that it did make sense to sell it to ConAgra."

After Gilroy was sold, keeping the plant made little sense. Built by McCormick in 1988 for $92 million, the plant uses natural gas to produce two types of energy: steam, which is used to dehydrate onions and garlic, and electricity, which is sold to Pacific Gas & Electric Co.

The plant purchase also includes additional payments over four years from Calpine to McCormick of approximately $24 million. In return for the payments, McCormick has agreed to stay out of the energy business, Kurtzman said.

McCormick will use the proceeds in part to pay off a $52 million debt associated with the plant that carries an interest rate of more than 11 percent. The early pay-off requires a $13 million prepayment charge but will yield $18 million in savings.

"What we're doing is paying down expensive debt," he said.

Kurtzman said the stock had increased, at least for the moment, because of both announcements.

"They like the fact that we have divested from these businesses," he said. "And the proceeds are higher than most analysts' estimates."

Pub Date: 8/30/96

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