Reckitt Benckiser Group PLC is considering a sale of its food business, which makes French’s mustard and ketchup, to help pay for the US$16.6 billion acquisition of infant-formula maker Mead Johnson Nutrition Co.
Reckitt will begin a review and consider all options for the business, which it called “non-core” in a statement yesterday.
With ￡411 million (US$514 million) in sales last year, French’s Foods accounted for 4 percent 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 Co, 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 is 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 5 percent last year, and the business generated adjusted operating profit of ￡118 million. The division makes ketchup, yellow mustard, Frank’s Red Hot sauces, onion flavorings 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 is above global food companies trading at 13.5 times on average, it is “probably justified by the strong fundamentals,” Kepler Cheuvreux analyst Richard Withagen said in a note.
Reckitt Benckiser shares rose 0.8 percent in early London trading yesterday.
Reckitt Benckiser’s acquisition of Mead Johnson, announced in February, marks an “inflection point,” chief executive officer Rakesh Kapoor has said.
He cited urbanization, 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 3 percent to 5 percent a year in the medium term.
Kapoor’s bonus was eliminated last year as the company took into account failings in South Korea, where a disinfectant used to clean humidifiers was linked to lung injuries and deaths.
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