I've argued over the past couple of years that the bull/bear argument for McCormick (MKC) largely comes down to price. There are some concerns around the margins, particularly relative to private-label penetration in grocery stores, and its impact on McCormick sales and pricing. But for the most part, the core bull argument for MKC seemed pretty solid: the company had safe growth prospects based on dominant market share in a spice & seasoning category that was protected from some of the negative trends afflicting other categories, like snacks or frozen food. It wasn't terribly leveraged (a net ratio of ~2x EBITDA). It was a defensive stock whose earnings were likely to grow. The argument, essentially, was how much growth there would be - and what that growth was worth.
That case likely changes after the company's $4.2-billion acquisition of Reckitt Benckiser's (OTCPK:RBGLY) food division. McCormick is levering up to make the deal, with all but $500 million of the cost coming from debt. McCormick is paying up too, with the price representing a 19.5x EBITDA multiple, a big number even in a space where mid-double-digit multiples haven't been uncommon the past few years.
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