CHICAGO J.M. Smucker Co (SJM.N) will acquire Folgers, the largest U.S. coffee business, from Procter & Gamble Co (PG.N) for stock in a deal valued at $2.95 billion, the companies said on Wednesday.
The deal will give P&G shareholders a 53.5 percent stake in Smucker, known for its namesake jellies and jams and which also makes Jif peanut butter and Crisco shortening, brands it acquired from P&G in 2002.
Smucker will issue a one-time dividend of $5 per share to its shareholders prior to the deal, which it called "a clear indication of the strength of the combined businesses."
Adding Folgers will almost double Smucker's annual sales to $4.7 billion, Smucker said.
As part of the deal, Smucker will assume $350 million of Folgers debt.
P&G said in January that it would spin off or split off Folgers as it focused on higher-growth segments such as health and beauty.
P&G Chairman and Chief Executive A.G. Lafley said in a statement that selling the business to Smucker in a tax-free stock deal meets the goals P&G set out when it announced plans to divest Folgers -- to maximize the after-tax value of the coffee business for P&G shareholders and minimize earnings-per-share dilution.
The deal is also better for P&G shareholders than a straight spinoff because of the cost savings and other benefits Smucker can reap from combining Folgers with its existing portfolio, Lafley said during a conference call with analysts.
"We believe that the structure of this deal is a positive for investors, as it gives P&G shareholders a stake in Smucker, as opposed to a small orphan stock, as would have been the case if Folgers had been spun-off as a stand-alone company," Citigroup household and personal care products analyst Wendy Nicholson, said in a research note.
To execute the deal, P&G will distribute Folgers to P&G shareholders, with a simultaneous merger of Folgers with Smucker.
Smucker said the deal would increase its fiscal 2009 earnings per share by about 9 percent if it owned Folgers for the entire fiscal year, which began May 1, excluding merger and integration costs but including the effect of the special dividend.
The deal is expected to close in the 2008 calendar fourth quarter, the companies said.
If the deal closes early in that quarter, Smucker forecast fiscal year 2009 earnings of $3.45 to $3.50, excluding merger costs, and 2010 earnings of $3.62 to $3.72 a share.
Sales are expected to rise 6 percent annually, long-term, with earnings up 8 percent, Smucker said, adding that it will continue to look for acquisitions to help boost sales.
Smucker said it expects cost savings and other benefits of more than $80 million. It also expects to incur one-time costs of about $100 million from the deal over the next one to two years.
The addition of Folgers will add to the products Smucker brings to retailers, allowing for more marketing options, said Richard Smucker, president and co-chief executive of Smucker.
Smucker shares rose 42 cents to $54.17 on the New York Stock Exchange, while P&G shares rose 96 cents to $66.37.
(Editing by John Wallace, Leslie Gevirtz)