McCormick & Company, Inc. (MKC) has signed an agreement to form a joint venture with Kohinoor Foods Ltd., India, to market and sell its basmati rice and food products in India. The newly formed venture will be named Kohinoor Specialty Foods India Private Ltd.
McCormick intends to invest about $115 million and will command an 85% interest in the new venture. Kohinoor Foods will also transfer certain trademarks and non-compete entities to McCormick. The deal is expected to close by the second half of fiscal 2011 and is subject to regulatory and other approvals in India.
Based in Sparks, Maryland, McCormick is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors to the entire food industry, across the globe. The company’s key sales, distribution and production facilities are located in North America and Europe. Furthermore, the company has facilities in Mexico, Central America, Australia, China, Singapore, Thailand and South Africa.
This joint venture is a part of McCormick’s strategic business plan to expand sales in emerging markets. Including India, McCormick expects emerging markets to contribute approximately 12% of total sales by 2015, reflecting an increase of 33.3% from 9% in fiscal 2010. The Kohinoor brand of products is an ideal fit to the company’s portfolio.
Based in New Delhi, India, Kohinoor Foods Ltd. is one of the leading manufacturers and marketers of Basmati rice, which is a premium and naturally flavored rice used in authentic Indian cuisine. The Kohinoor brand is one of the top national brands in the basmati rice category in India and also has a significant international presence in countries such as the U.S., the U.K., Dubai, Canada, Japan, Australia, Singapore and several European countries. Across the entire portfolio of products, domestic sales grew 16.0%, while exports grew 26.5%.
McCormick is expected to finance the transaction through cash and debt. In fiscal 2011, the deal is expected to reduce earnings by approximately 2 cents to 3 cents a share for McCormick. However, beginning 2012, the joint venture is expected to be accretive to McCormick’s earnings.
Both the companies are expected to significantly benefit through this new joint venture. McCormick believes that Kohinoor has developed a fast-growing, profitable business, with vast expertise in their products and an extensive distribution network in the Indian retail market. McCormick plans to develop and launch new products, penetrate in to potential and under-served markets and thereby expand in the foodservice channel in India.
McCormick has a decade-long presence in India. The company first partnered with A.V. Thomas Group in 1994. AVT McCormick Ingredients Private Limited has grown into a leading supplier of cleaned, steam sterilized, ready to use spice ingredients for the global market.
In 2010, McCormick acquired a 26% interest in Eastern Condiments Private Limited that is a leading brand of spices, seasonings and other related food products in India and the Middle East.
McCormick currently holds a Zacks #3 Rank which implies a short-term (1-3 months) Hold’ rating.
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