The champagne was flowing in Paris yesterday as McCormick & Co.'s chief executive toasted his company's largest acquisition ever - the purchase of Ducros, Europe's top spice producer.
The Sparks-based spice maker paid $379 million in cash for Paris-based Ducros, which had net sales last year of about $250 million. It's the world's second-largest spice company, behind only McCormick itself, which had $2 billion in sales last year.
The deal was signed in Paris at the headquarters of Eridania Beghin-Say, Ducros parent, which outbid McCormick in 1991 when both companies were trying to acquire Ducros. But, said McCormick Chairman and CEO Robert J. Lawless, there are no hard feelings.
"We have a very positive relationship," Lawless said. "They got a check for $379 million, so that helps make their day a little nicer, and we got a great company."
Before the acquisition, McCormick was the third-largest consumer spice maker in Europe. With Ducros in its lineup, McCormick will control 20 percent of the European consumer spice market.
The deal is expected to dilute earnings per share by up to 5 percent in 2001, McCormick officials said, but earnings per share next year should still have a "high single-digit" growth rate. The acquisition is being funded by short-term notes, bank loans and issuing bonds.
Currency fluctuations worked to McCormick's advantage in the deal. The two agreed to a price of 2.75 billion French francs in June, then equivalent to $394 million.
But by yesterday the fall of the value of the franc vs. the dollar made that worth just $379 million, saving McCormick about $15 million.
Moody's Investors Services said in June that it would review McCormick's credit rating in light of the acquisition. It has since said it will not downgrade the rating, which is at A2, or about in the middle of investment-grade ratings - those that don't include junk bonds.
"Although it would add debt and add some pressure on the company's operations and performance and add extra stress," said Moody's senior analyst Peter H. Abdill, "we thought the situation was temporary and that it made good, solid business sense and that the company could recover."
Standard & Poor's, however, downgraded McCormick's cooperate credit rating one notch to A minus.
"While the [Ducros] acquisition will improve McCormick's business position in the faster-growing European market, the acquisition reflects a more aggressive use of debt, which will substantially weaken debt protection measures in the medium term," said the S&P; report.
McCormick's last major acquisition was in 1984, when it bought Paterson Jenks for $54 million, giving McCormick the Schwartz brand, the top-selling spice line in the United Kingdom.
Shares of McCormick closed up 37.5 cents yesterday at $29.125.