Reckitt Benckiser Group is considering a sale of its food business, which makes French’s mustard and ketchup, to help pay for the $16.6-billion acquisition of infant-formula maker Mead Johnson Nutrition.
Reckitt will begin a review and consider all options for the business, which it called “non-core” in a statement on Monday. With £411 million ($515 million) in sales past year, French’s Foods accounted for four per cent of Reckitt Benckiser’s total revenue.
The possible sale of the food unit comes amid a reshuffling of portfolios at global consumer giants, many of which are experiencing a slowdown in sales growth for stalwart brands. Unilever has launched a strategic review after fending off a takeover approach from Kraft Heinz, and a sale of its spreads business is one option, according to people familiar with the situation. Reckitt is focusing on businesses such as Dettol cleaner and Durex condoms, plus the Enfamil baby formula brand it’s getting from the Mead Johnson deal.
While preparing the food unit for a possible sale, Reckitt Benckiser said it had a “history of outperformance.” Like-for-like food sales grew five per cent last year, and the business generated adjusted operating profit of £118 million. The division makes ketchup, yellow mustard, Frank’s Red Hot sauces, onion flavourings and other products.
A possible price tag of £2 billion, which the UK’s Sunday Times newspaper reported, would imply a multiple of about 16 times earnings before interest, taxes, depreciation and amortization. While that’s above global food companies trading at 13.5 times on average, it’s “probably justified by the strong fundamentals,” Kepler Cheuvreux analyst Richard Withagen said in a note.
Reckitt Benckiser shares were up 0.2 per cent at 9:50 am in London. Reckitt Benckiser’s acquisition of Mead Johnson, announced in February, marks an “inflection point,” Chief Executive Officer Rakesh Kapoor has said. He cited urbanisation, changes to China’s one-child policy and increasing rates of women entering the workforce as reasons for entering the infant nutrition market, which he sees growing at three per cent to five per cent a year in the medium term.
Bank of America, Robey Warshaw, Deutsche Bank and HSBC Holdings advised Reckitt on the purchase of Mead Johnson. The company has not named banks to assist with the review of the food business.
Reckitt Benckiser has owned French’s, whose primary market is the US, since the 1920s. The brand competes with Kraft Heinz’s signature ketchup, and could attract interest from other trade buyers as the industry comes under pressure to reduce costs through consolidation.
Kapoor’s pay was cut by 43 per cent last year, to £14.6 million from £25.5 million in 2015, the company said last week.