McCormick victorious in spice war Australian competitor says it's pulling back to yeast and vinegar

The Spice War is over, and McCormick & Co. Inc. won.

Burns Philp & Co., the Australian conglomerate that waged an expensive battle of attrition against the Sparks-based spice giant, is getting out of the business completely.

The company said it will sell its money-losing spice business, and three of its top executives are quitting.

McCormick had trouble containing glee at beating back a decade-long challenge to a franchise it started building in Baltimore 108 years ago.

"When you've been engaged in a global war and the other guy who started it waves a white flag, it's tough not to feel good about it," Carroll Nordhoff, McCormick's executive vice president, said yesterday.

Burns Philp said it's selling a business that includes the Durkee-French, Spice Islands, Tone's, British Pepper & Spice, Euroma and Ostmann brands.

McCormick would not rule out the possibility of making a bid for the business.

"It's early," Nordhoff said. "But at this point, we're not closing the door on any options. I wouldn't preclude or foreclose any action."

McCormick, the world's largest spice company, employs about 7,300 people worldwide, including about 2,000 in Hunt Valley and Harford County.

It has about $1.7 billion in annual sales.

The victory over Burns Philp culminates a comeback by McCormick in the face of adversity that struck its boardroom and its business.

First, Bailey A. Thomas, then chairman and chief executive, died from a heart attack three years ago.

The next CEO, Eugene Blattman, retired at the end of 1995 because of a heart ailment.

Charles P. "Buzz" McCormick, the retired chairman, re-assumed the chairmanship upon Thomas' death. He assumed the CEO job in the beginning of 1996, replacing Blattman.

Satisfied that the company was in good hands, McCormick in January relinquished the CEO job to Robert J. Lawless, the chief operating officer. McCormick, now semi-retired, remains chairman.

If Burns Philp sells its business off in pieces, McCormick will be left with small regional spice companies as competitors in its huge retail market.

If the spice business is sold to a single buyer, McCormick might face another huge competitor.

"I would say this will be an advantage to McCormick unless it's bought by someone who really wants to be in the spice business and will really concentrate on it," said Kurt Funderburg, a Ferris Baker Watts analyst.

McCormick controls about 45 percent of the U.S. market; Burns Philp has about 17 percent. That kind of dominance might make an acquisition difficult because of antitrust obstacles.

"Virtually it's impossible," Funderburg said. "Upwards of 90 percent of the supermarkets in this country carry either McCormick, Spice Island or Durkee French brands. McCormick has enough trouble buying small spice companies in this country."

Future competition uncertain

Funderburg said McCormick might pursue small parts of Burns Philp's overseas businesses. But Nordhoff countered that McCormick has several competitors, so an acquisition might be possible.

McCormick shares rose 25 cents, to close at $26.125 yesterday -- part of a steady climb in recent months as the company persuaded Wall Street of a turnaround and Burns Philp continued to struggle.

"You never gloat about a competitor's failure. But there's no question about it. It's tough not to smile for a couple of minutes."

Carroll Nordhoff,McCormick's executive vice president.

Burns Philp, the world's largest maker of bakers yeast and white industrial vinegar, became a competitor in the spice business partially by mimicking McCormick.

Burns first entered the spice business in 1988 by buying the San Francisco-based Spice Islands brand after McCormick's takeover bid was killed by federal antitrust regulators.

Four years later, Burns became the United States' second-biggest spice company by buying the Durkee French brand.

In 1993, Burns again followed McCormick's lead, buying Germany's largest spice maker, Karl Ostmann Gmbh, after German antitrust regulators scotched a takeover effort mounted jointly by McCormick and CPC International.

Bidding war in stores

The upstart company's tactic was to engage McCormick in a bidding war for shelf space.

The idea, honed in Burns Philp's yeast business, was to capture the shelf space, lower prices, gain customers and then slowly ratchet prices back up. Its aim was to become the single line of spices carried by most grocery stores.

The war proved costly for both companies.

McCormick spent millions to keep its products on the shelves and Burns Philp's off. The company's "prepaid expenses," which mirror multiyear shelf-space agreements with retailers, increased by 53 percent from $137 million in 1994 to $210 million in 1995.

Responding to its challenges, McCormick focused on its spice business, selling California-based Gilroy Foods -- its onion and garlic business -- and Gilroy Energy Co., a co-generation plant, for $263 million.