McCormick has deal to buy biggest rival

Merger bolsters position in Europe


June 29, 2000|By Kristine Henry | Kristine Henry,SUN STAFF

After going more than a decade without a major acquisition, McCormick & Co. said yesterday that it has reached an agreement to buy Ducros, the world's second-largest spice maker, for $394 million in cash.

Officials at McCormick, which even without Ducros is the world's No. 1 spice company, disclosed late last week that they were in the advanced stages of negotiations to buy the French company.

While McCormick is the world's biggest spice producer, in Europe it currently holds the No. 3 market-share position in consumer sales of spices and herbs, while Ducros holds the top spot.

With Ducros, a subsidiary of Eridana Beghin-Say, McCormick will have 20 percent of the European consumer spice market.

"It's an excellent deal for McCormick in the long term because it gives them some critical mass in Europe," said Mitchell B. Pinheiro, an analyst at Janney Montgomery Scott LLC, adding that the deal would dilute earnings. But, he said, "to get something this strategically important, sometimes you just have to bite the bullet."

McCormick said the deal is expected to dilute earnings per share by about 5 percent in 2001 but that earnings next year should still have a "high single-digit" growth rate.

"For shareholders, it's good news, bad news," said John McMillin, an analyst at Prudential Securities in New York. "The good news is it fits beautifully from a strategic standpoint and it gives them a pan-European platform. The bad news is they paid a full price."

Analysts have long said McCormick needs to get more aggressive about buying companies and expanding its reach.

Its last major acquisition was in 1984, when it bought Paterson Jenks for $54 million, giving McCormick the Schwartz brand, the No.1 selling spice line in the United Kingdom.

In 1991, Eridana Beghin-Say outbid McCormick for Ducros, and two years later McCormick tried to purchase Karl Ostmann GmbH & Co., Germany's largest spice producer, in a joint venture with CPC International. The deal was called off when it became clear that German government regulators would not bless the deal.

Officials at McCormick said they don't expect regulatory problems with the Ducros deal, which is expected to close this summer.

Eridana Beghin-Say is selling the profitable Ducros unit because it doesn't fit with its core focus of sugar and oils.

"It creates a company that by 2002, because of the acquisition, will be 12 percent bigger in sales and earnings," said Robert J. Lawless, McCormick's president, chairman and chief executive. "I'm very, very excited."

McCormick had 1999 net sales - including both consumer and industrial - of $347 million in Europe; Ducros' sales were about $250 million.

Lawless said the deal will allow the company to improve its raw-material purchasing power and boost product development in Europe.

Analyst R. Bentley Offutt of Offutt Securities in Hunt Valley said the deal was especially beneficial because it expands McCormick's consumer business, which has high margins. In Europe, he said, McCormick's sales are 60 percent consumer and 40 percent industrial, while Ducros' are 88 percent consumer and 12 percent industrial.

"I think it's a good move and it's a signal that they're going to accelerate the growth of the company," Offutt said.

Shares of McCormick closed down 12.5 cents yesterday at $34.0625.

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