• by Thom Forbes  @tforbes, April 4, 2017

Would you like some mustard on that? If so, Reckitt Benckiser has got a deal for you. Fresh off its announced $16.6 acquisition of U.S. baby-formula-maker Mead Johnson, the global consumer products company based in Berkshire, England, is thinking about selling its foods business, which is best known for French’s mustard and Frank’s Red Hot sauces.

“Trade buyers, such as Kraft Heinz or Mars, could be interested in French’s, as well as cash-rich private equity groups that could plough further investment into the brand and its expansion,” writes Deirdre Hipwell, who broke the story for the London Times on Sunday.

RB later confirmed the “recent press speculation” in a statement that reads: “French's Food is a truly fantastic business with great brands, people and a history of outperformance. It is nevertheless non-core to RB. We have therefore decided to initiate a strategic review of Food where we will explore all options for this great business.”

“The possible sale of the food unit comes amid a reshuffling of portfolios at global consumer giants, many of which are experiencing a slowdown in sales growth for stalwart brands,” point out Thomas Buckley and Ruth David for Bloomberg.

“Unilever has launched a strategic review after fending off a takeover approach from Kraft Heinz Co., and a sale of its spreads business is one option, according to people familiar with the situation. Reckitt is focusing on businesses such as Dettol cleaner and Durex condoms, plus the Enfamil baby formula brand it’s getting from the Mead Johnson deal,” Buckley and David continue.

“Other major food brands have become takeover targets in recent years as their parent companies look for ways to breathe new life into mature labels. Consumers are increasingly looking for higher-value or more exotic alternatives to the jars and bottles that have long filled kitchen cabinets,” observes Chad Bray for the New York Times. 

“Speculation suggests Reckitt will be seeking between £2 to £2.3 billion” for the business, Chris Wickham, an analyst at Whitman Howard, tells the Telegraph’s Bradley Gerrard, pointing out that food “had always been regarded as non-core” to Reckitt Benckiser’s business. “It does require any acquirer to get some pretty good synergies,” Wickham added.

And that’s a high price tag for condiments, according to some analysts.  

“This would be 5.6 times 2016 sales and 18.5 times 2016 EBITDA, which we see as a full price for a mature market foods business that has been largely ex-growth in recent years,” Société Générale analyst Iain Simpson says in a note cited by the Financial Times’ Scheherazade Daneshkhu and Conor Sullivan.

“Food’s operating profit margins of 28.7% in 2016 are high by industry standards, and revenues of £411m rose at a respectable 5% — faster than the group average of 3% last year compared with 2015. But the business has little exposure to emerging markets and is heavily dependent on the U.S. for sales,” they write.

“French’s would be small change for Kraft Heinz,” writes Stephen Wilmot for the Wall Street Journal. “… But there are major obstacles to this speculated combination. One concerns antitrust issues: French’s and Heinz have started to compete for each other’s lunch over the past two years.” 

Then there’s the matter of making it pay off. “The other problem, perhaps counter-intuitively, is French’s high operating margin, which was close to 29% last year. … If the model is to buy and find savings, they need to get their teeth into a flabbier business,” Wilmot continues.

Cutting the mustard isn’t the only thing that’s getting slashed at Reckitt Benckiser.

“The company last week revealed it had slashed the pay of chief executive Rakesh Kapoor by more than a third to £14.6 million last year,” Joanna Bourke reports for the Standard. 

The action came after “a safety scandal in South Korea that dented the consumer goods maker's performance,” Martine Geller reports for Reuters. The move, “outlined in the company's annual report on Friday, could head off a repeat of last year's shareholder revolt at its annual meeting in May, at a time when concerns over executive pay are gathering steam among investors and politicians.”

In January, a South Korean court convicted 14 people, including a former head of the local unit of Reckitt Benckiser, “over the sale of humidifier sterilizers linked to deadly lung injuries,” Reuters reported at the time.