We’re here to compete on flavor

Ask McCormick (MKC) chair and CEO Brendan Foley why his big play for Unilever’s (UL) food business makes strategic sense, and it all comes back to delivering on flavor.

“We’re not in the business of competing for calories, we’re there to flavor them,” Foley said on Yahoo Finance (video above). “We really think this combination is terrific on many levels. We have to go execute now.”

Foley is trying to orchestrate one of the spiciest deals Big Food has seen in a while.

McCormick and Unilever announced last week that they have entered into an agreement to combine their food businesses, excluding those in India. The deal values the combined company at about $65.8 billion and includes brands like Knorr and Hellmann’s.

• Foley will lead the combined company.

• McCormick has received $15.7 billion in committed bridge financing from Citigroup Global Markets, Goldman Sachs Bank USA, and Morgan Stanley Senior Funding. McCormick intends to fund the deal’s cash component through cash from its balance sheet and proceeds from new debt issuance.

• The combined company expects to realize approximately $600 million in run-rate annual cost savings, net of growth reinvestments. A large chunk of those cost savings is expected to be delivered within the first two years of the deal closing.

• The deal is expected to close by mid-2027.

McCormick will get a Unilever food business that performs respectably but endures the same challenges as others in the industry, including market softness due to evolving consumer preferences.

Unilever’s food business sales grew by 2.5% last year, with operating profits gaining 2.7% due to a more watchful eye on expenses. The company called out “declining markets” in developed countries, with Hellmann’s outperforming due to a new flavored mayonnaise range.

Sales in the Cooking Aids segment increased by a low-single-digit percentage, mostly from higher prices.

The Food Solutions segment saw flat year-over-year sales, as volume gains in North America were offset by declines in China. The company blamed “weaker out of home consumption” and economic pressure.

Foley said the company is ready to innovate in Unilever’s food business.

“We do think the combination makes sense both strategically (both businesses focus on flavor, and their categories are complementary) and financially (we estimate over 20% potential post-synergy EPS accretion). We also think MKC has a better track record with M&A than many other food companies (the RB Foods acquisition was especially successful),” JPMorgan analyst Tom Palmer said in a note.