McCormick buys FONA International for £521.79 million in cash

In an announcement on Wednesday, McCormick & Co. (NYSE: MKC) said it had acquired FONA International for £521.79 million in cash. FONA is an Illinois-based flavour company that focuses on health and nutrition.

In a report published late in September, the global food company had posted £160.11 million of net income for its fiscal third-quarter versus the year-ago figure of a lower £149.08 million.

McCormick’s shares, which you can how to buy stock here, slid more than 0.5% on market open on Wednesday. Including the price action, the U.S. company is now trading at £69.60 per share after recovering from a year to date low of £41.83 per share in late March due to the COVID-19 disruptions. McCormick had a per-share price of £61.56 at the start of 2020.

CEO Lawrence Kurzius’ comments on Wednesday

CEO Lawrence Kurzius of McCormick commented on the news on Wednesday and said:

“The acquisition of FONA reinforces McCormick’s global growth strategy as FONA expands the breadth of our flavour solutions segment into attractive categories, as well as extends our technology platform and strengthens our capabilities. This acquisition also accelerates the strategic migration of our portfolio to more value-added and technically insulated products and thus, is expected to be accretive to gross margin.”

The news comes only a month after McCormick said that it had acquired the parent organisation of Cholula hot sauce for £587.93 million – an acquisition that it said will weigh on its per-share earnings in fiscal 2020 and 2021. On an adjusted basis, however, McCormick forecast no impact on its EPS in both years.

FONA’s annual sales are likely to grow by 5% to 9%

FONA currently boasts roughly £83.78 million of annual sales that are likely to grow by 5% to 9%. Buying 100% shares of the flavour company, McCormick said on Wednesday that it will finance the deal with cash and commercial paper.

McCormick acknowledged that its agreement with FONA will result in an increase in its net debt to adjusted EBITDA ratio. But the Baltimore-based company expressed confidence that the expected robust cash flow generation will help it pay down its debt and maintain its dividend policy.

McCormick performed fairly upbeat in the stock market last year with an annual gain of roughly 20%. At the time of writing, the Fortune 1000 company has a market cap of £18.61 billion and a price to earnings ratio of 33.56.