Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=92527
Story Retrieval Date: 3/10/2014 5:07:37 AM CST
Procter & Gamble Co., unveiling details of its divestiture of slow-growing Folgers coffee, said the brand will be spun off to shareholders and immediately merged into Orville, Ohio-based J.M. Smucker Co. in an all-stock transaction valued at approximately $3.3 billion. The deal will give P&G shareholders a 53-percent share of the merged company.
“Folgers is a perfect fit within our portfolio of leading and iconic North American food brands,” said Tim Smucker, chairman and co-CEO of Smucker, in a press release.
Wednesday’s announcement is the latest update on the Folgers divestiture, a move that was first announced in January. P&G has recently moved to get out of businesses it believes aren't growing fast enough, and Folgers didn't make the cut.
“Its growth is typically less than our anticipated growth of 4 to 6 percent,” said Paul Fox, a spokesman for the company. “We wanted to focus on our faster- growing businesses.”
A. G. Lafley, chairman and CEO of P&G, explained in a conference call why the deal was more complicated than the originally announced splitoff of Folgers.
“This transaction creates value for P&G shareholders that would not have existed if we had continued on the path of creating a stand-alone company,” Lafley said.
“Smucker has identified significant cost synergies that will be shared by the owners of both companies.”
Deutsche Bank Securities Inc. analyst Christina McGlone expressed some doubt about the proposed synergies on the conference call.
“With the Jif and Crisco transaction there really weren’t many synergies,” she said, pointing to Smucker's previous acquisition of P&G brands.
The new deal’s savings, as explained by Richard Smucker, president and co-CEO of Smucker, come mainly from the administrative side of the combined businesses, but noted the company will almost double its sales to an estimated $4.7 billion.
Total cost savings from the combined company will be $80 million, estimated to increase EBITDA margins by 3 percent.
“We definitely expect our bottom line growth to be at or above our current growth rate of 8 percent,” Smucker said.
While details of the deal are not finalized, the transaction is expected to take place in three parts. P&G will spin off the Folgers brand as an independent company to its shareholders. Prior to the merger, Smucker will pay a one-time dividend of $5 per share to its shareholders. Smucker will then acquire the newly formed company in an all-stock transaction, including assumption of $350 million in existing debt tied to Folgers.
The deal will be tax-free to the companies and shareholders, with the exception of the $5 dividend.
The stocks of both companies move higher on the news. P&G closed at $66.45, up $1.04 or 1.6 percent. Smucker closed at $53.87, up 12 cents or 0.22 percent.