McCormick has reached an agreement to sell all the operating assets of its packaging business to Kerr Group. The sale includes the assets of both Setco and Tubed Products.
The company acquired Tubed Products in 1968 and Setco in 1981. These businesses manufacture certain products used for the packaging of McCormick's spices and seasonings as well as packaging materials for other industries such as vitamin, drug and personal care.
Under the terms of the sale agreement, the packaging business will be sold for $142.5 million (€123.5m)and include the assumption of all normal trade liabilities. Of the $142.5 million, $132.5 million will be paid in cash upon completion of the sale, and the remaining $10 million will be paid over five years based on meeting certain performance objectives.
The transaction is subject to Hart Scott Rodino clearance and other customary closing conditions. McCormick expects the transaction to close during the third quarter of 2003. McCormick and Kerr have also entered into a multi-year supply agreement.
"McCormick indicated last year that the packaging business was not a strategic part of our food business and was under review," said McCormick chairman Robert Lawless.
"While several options were reviewed, we believe the transaction announced today will build long-term value for McCormick shareholders, create opportunities for the employees of Setco and Tubed Products, and best serve the customers."
The proceeds from this sale will be used to reduce a portion of the debt related to the acquisition of Zatarain's completed on 4 June 2003. The company will also resume its share repurchase programme.
In 2002, McCormick reported sales of $2.3 billion and earnings per share of $1.26. The disposition of the packaging business will be reported as a discontinued operation. As such, the company will report a decrease in 2002 sales from continuing operations of $171 million and a decrease in earnings per share from continuing operations of $0.07.
In 2003, earnings per share from discontinued operations from the packaging business will include approximately $0.09 for the gain on the sale of this business.
"We have made two key strategic moves in the last few weeks," said Lawless. "First was our acquisition of Zatarain's, a growing business that expands our US consumer base and offers opportunities internationally and in food service.
"Second is this agreement to sell the packaging business. Following the completion of this transaction, McCormick will be fully focused on our core business of spices, seasonings and flavours."
The Kerr Group is a provider of speciality plastic closures and containers to the pharmaceutical, healthcare and food and beverage industries in North America. Kerr designs and manufactures highly engineered, proprietary, injection and compression molded plastic closures and containers that incorporate functional features such as child-resistance and tamper- evidence.
McCormick is a global manufacturer of spices, seasonings and flavours to the entire food industry, to foodservice and food processing businesses as well as to retail outlets.