Price was right for McCormick

McCormick & Co. got slammed by investors last week for agreeing to buy the French’s food business for $4.2 billion, a price Wall Street deemed too high.

But the notion that the business could be acquired for something closer to $3 billion — a price cited in reports earlier this year — was based on bad information, McCormick Chief Executive Officer Lawrence Kurzius said in an interview. Companies offering anything near that price dropped out in early rounds of the bidding process, he said.

“The price that was floated was never in the cards — that speculation was not well-informed,” Kurzius said. “It was unfortunate that that was out there, but I’m really comfortable with what we paid.”

McCormick announced the deal late on Tuesday, agreeing to acquire French’s mustard, Frank’s RedHot sauce and other products from the UK’s Reckitt Benckiser Group. The news sent the spice company’s shares down 5.2 percent the following day, marking their biggest dip since January 2014.

The transaction price equated to about 20 times the division’s earnings before interest, tax, depreciation and amortization, which RBC Capital Markets analyst James Edwardes Jones called “a very high price.”

When reports first surfaced in April that Reckitt was looking to sell the French’s business, news outlets said the division was valued at about $3 billion.

Given the competitive nature of the bidding process, there’s no way Reckitt would have agreed to anything in the $3 billion range, Kurzius said.

Many of the food industry’s biggest companies were seen as possible suitors for the Reckitt business, sources said.