McCormick settles claim over cost of acquiring Ducros

Price of Paris company is lowered $55 million after two-year dispute

April 30, 2003|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

McCormick & Co. Inc. ended a dispute of more than two years yesterday by settling a claim that reduces the price it paid for Ducros, Europe's top spice producer, by $55 million.

McCormick bought Paris-based Ducros, the world's second-largest spice company behind McCormick, in August 2000 for $379 million, the largest acquisition ever for the Sparks-based spice maker.

The contract to acquire Ducros from parent company Eridania Beghin-Say gave McCormick the right to request a purchase price adjustment if it found inconsistencies in its due diligence.

"As we closed the acquisition and as we looked at what was actually in the records as a result of detailed due diligence, there was a difference between that and the sales memorandum document," Robert J. Lawless, McCormick's chairman, president and chief executive officer, said yesterday. "It was not one single item."

Lawless said confidentiality agreements prohibited him from being more specific about areas of disagreement. The contract allowed for a maximum adjustment of 150 million euros ($166.1 million), but Lawless said that turned out to be an unattainable amount.

The company had been in arbitration since closing the deal, first with Eridania and then, about a year ago, with Cereol SA, a French maker of vegetable oil that was created and assigned the McCormick liability when Eridania was broken into four companies.

"This has been a wonderful acquisition for McCormick and has allowed us to gain additional geography in Europe," Lawless said. "With the settlement ... we're ecstatic with the acquisition, and the returns are greater than we anticipated when we closed."

The $55 million payment, from reserves set aside by Cereol, includes $5 million in interest income - which analysts said will add 2 cents per share to earnings in the second quarter - and $50 million that will be recorded as an adjustment to goodwill. With the additional interest income, McCormick is expected to report earnings of 27 cents a share for the fiscal second quarter that ends May 31, analysts said yesterday.

McCormick said the cash will allow it to accelerate capital investments and acquisitions. The settlement money could be used to buy down some debt, buy back some stock or finance the growth of the company, possibly with more acquisitions, Lawless said.

"We believe that this arbitration settlement was essentially in line with expectations," said George Askew, an analyst in the Alexandria, Va., office of Baltimore-based Legg Mason Wood Walker Inc. "Clearly, the incremental cash will enable the company to continue to execute upon its strategies, and there is a benefit in having the uncertainty of this claim behind the company."

The Ducros acquisition had been an expensive, albeit fair, one for McCormick, said Bentley Offutt, an analyst with Offutt Securities in Hunt Valley.

"It was within a fair price, but the market was near its high - and they did have this price adjustment clause in the contract and felt entitled to the original amount," he said.

The company ended up settling for much less than it had originally requested, he said.

But, "it is good that they went ahead and got it resolved and will be able to invest money wisely and move the company ahead."

"In today's world, the price of acquisitions has come down significantly in the last couple of years," Offutt said. "They will be able to do very well with the amount of money they received."

Shares of McCormick lost 3 cents yesterday to close at $24.90 on the New York Stock Exchange.

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