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 U.S., the purchase will catapult Smucker into the leading position in the coffee market. The brand, though, has to contend with the popularity of Starbucks Corp.'s chain of coffee stores and the proliferation of gourmet coffee brands.

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.