In order to broaden its presence in the emerging markets of Western, Central, and Eastern Europe, spice-maker McCormick & Company, Inc. (MKC) agreed to acquire Poland-based privately-held Kamis S.A. for approximately 830 million Polish zloty ($291 million).
On the same day, McCormick’s Board declared a dividend of 28 cents per share for the quarter, which is payable on July 25, 2011 to shareholders of record as on July 11, 2011.
Further, McCormick stated that the transaction multiple is expected to be 12 to 13 times EBITDA (earnings before interest, tax, depreciation and amortization) and the acquisition is expected to consummate by September 2011, subject to regulatory approval, including antimonopoly clearance in Poland, Russia and Ukraine.
Prior to the closing of the deal, a portion of Kamis’ assets and business operations related to tea production and distribution will be carved out to the selling shareholders. McCormick will finance the deal with cash and debt.
The acquisition will lower 2011 earnings per share by approximately 3 cents in 2011. However, the Kamis acquisition is expected to provide accretion of approximately 6 cents to McCormick’s earnings per share in fiscal year 2012.
Kamis is a brand leader in spices, seasonings, mustards and other flavor products in Poland, with distribution capabilities in Russia and other parts of Central and Eastern Europe. This falls in line with the growth strategy of McCormick which is interested in expanding in Europe, Middle East and Africa.
In addition, Kamis produces high quality products and thus more than a third of consumers in Poland purchase seasonings at least every two weeks. Further, Kamis generated annual sales of approximately 300 million Polish zloty ($105 million) last year across its entire portfolio.
The acquisition of Kamis will help McCormick to develop and launch new products in other categories, accelerate penetration of other Central and Eastern European markets and expand in the food service channel. Further, the acquisition complements McCormick’s strong brands in the U.K., France and other parts of Western Europe, as well as its recently announced joint venture in Turkey.
McCormick had made solid progress with its growth strategy in emerging markets in China, Mexico, South Africa and Turkey, as well as in several smaller markets. This has resulted in the increase in the portion of sales from emerging markets from 6% in 2006 to 9% in 2010.
Further, McCormick expects its sales to exceed 12% in 2012 from emerging markets with the addition of Kohinoor in India and Kamis in Poland.
McCormick recently formed a joint venture with Kohinoor Foods Ltd., India, in early June to market and sell its basmati rice and food products in India. The newly formed venture will be named Kohinoor Specialty Foods India Private Ltd.
McCormick intends to invest about $115 million and will command an 85% interest in the new venture. Kohinoor Foods will also transfer certain trademarks and non-compete entities to McCormick. The deal is expected to close by the second half of fiscal 2011 and is subject to regulatory and other approvals in India.
We are well aware of McCormick’s significant presence in the international market and its multiple acquisitions that add more strength. Also, we believe that acquisitions and joint ventures have become a top priority for McCormick. Both Kohinoor and Kamis deals were done in an effort to expand sales in emerging markets.
However, the highly competitive market and tough competitors like Kraft Foods Inc. (KFT) and Unilever plc. (UL) leave McCormick a little uncertain.
McCormick currently holds a Zacks #3 Rank which implies a short-term Hold rating.
