What's going on?

After beating some of its bigger rivals in a bidding war, American spice giant McCormick announced on Wednesday that it was buying the foods division of the British conglomerate Reckitt Benckiser (RB) for $4.2 billion. (tweet this)

What does this mean?

Compared to the rest of the packaged foods industry, RB Foods, which sells popular brands such as French�s Mustard and Frank�s RedHot, commands relatively high profit margins and is growing sales more quickly than many of its competitors. When RB announced earlier this year that it would sell the division to focus on its core businesses of home and personal care, plenty of companies indicated their interest.


Packaged food giants Unilever and Hormel Foods reportedly attempted to acquire RB Foods, but McCormick won out � and the deal will make McCormick the world�s third-largest packaged foods manufacturer!

Why should I care?

For markets: RB�s investors seem happier than McCormick�s.

When it said it would put its food division up for sale 3 months ago, analysts estimated that RB could expect to get between $2.5 and $4 billion for it � and it got $4.2 billion, which is great news for the company and its investors (RB�s stock jumped by almost 2%)! However, judging by the 5% decline in McCormick�s stock on Wednesday, investors may be fearful that McCormick overpaid for old-school brands that are losing their appeal to today�s consumer.

The bigger picture: M&A can help companies boost profits.

Amid slow sales growth and changing consumer tastes (e.g. to fresher, healthier options), the packaged foods industry is in the midst of a flurry of mergers and acquisitions as companies try to refocus their product lineup. For example, Unilever announced earlier this year that it was selling its spreads (e.g. margarine) unit to focus on its personal care products, while Swiss giant Nestle has put its US candy business up for sale as part of its move to offer healthier products.