Smucker to Buy Folgers from P&G For $3 Billion
Smucker to Buy Folgers from P&G For $3 Billion
Smucker to Buy Folgers from P&G For $3 Billion
J.M. Smucker Co. said Wednesday it has agreed to buy the Folgers coffee business from Procter & Gamble Co. in an all-stock deal valued at nearly $3 billion.
The acquisition, which also includes $350 million in Folgers debt, will nearly double the size of the Orrville, Ohio-based food company, which now has annual sales of about $2 billion and a market capitalization of about $3 billion.
Under the terms of the deal, Smucker will issue a one-time special dividend of $5 a share to Smucker shareholders prior to the merger, which it called "a clear indication of the strength of the combined businesses." P&G shareholders will then get about 53.5% of Smucker, ensuring the stock-for-stock merger is tax-free.
The agreement has been approved by the board of both companies. Cincinnati-based P&G is expected to split off Folgers and finalize the transaction structure in the early fall. Smucker expects to incur about $100 million in one-time costs related to the deal over the next two years.
As Folgers is the top-selling ground coffee in the
Smucker said the merger "provides investors with a compelling financial story and further strengthens Smucker's ability to deliver enhanced shareholder value over time." The company said the deal would increase fiscal 2009 earnings by about 9% a share, excluding one-time items, while it would result in synergies of more than $80 million.
Smucker added that if the deal closes early in the fourth quarter of this year, fiscal 2009 earnings are expected to reach $3.45 to $3.50 a share, while fiscal 2010 earnings would be expected to jump to $3.62 to $3.72 a share.
"Folgers is a perfect strategic fit within our portfolio of leading and iconic North American food brands," Smucker Chairman and Co-Chief Executive Tim Smucker said Wednesday.
President and Co-CEO Richard Smucker added, "Coffee is the perfect complement to breakfast or dessert -- two areas we know a lot about...The addition of Folgers will also enhance our ability to reach out to consumers at retail through complementary, multi-brand merchandising activities."
Smucker said following completion of the deal, the it will add more than 1,250 employees.
It isn't the first time that Smucker has struck a daring deal with P&G. In 2002, Smucker acquired Jif peanut butter and Crisco shortening in an all-stock deal valued at nearly $1 billion. Acquiring Jif and Crisco then gave it the lead position in peanut butter and cooking-oils markets.
The deal is a departure from P&G's previous plans to separate Folgers into a standalone business, as it announced it likely would in January.
P&G had decided to shed the Folgers business as part of a companywide effort to reduce its exposure to slow-growing businesses that can't keep pace with its annual sales-gain target of 4% to 6%. Folgers has a sales-growth rate of about 2% to 3%.
Since A.G. Lafley took the helm of P&G, he has been cleaning company cupboards of slow-moving food businesses to focus on faster-growing health and beauty industries.
Smucker was founded in 1897 by Jerome Monroe Smucker, who began pressing apple cider and selling apple butter off a horse-drawn wagon, according to the company's Web site. The company is still run by his descendants, including co-CEOs Richard and Timothy Smucker.
The company moved into jellies, jams, fruit spreads and ice-cream toppings, and went public in 1959. In the 1960s it coined the advertising slogan, "With a name like Smucker's, it has to be good." That same decade, Kellogg's Pop-Tarts were introduced, filled with Smucker's jam.
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