P&G sells Folgers coffee to J M Smucker in reverse transaction

04 June 2008

In a reverse transaction valued at around $3.3 billion, Procter & Gamble Co will merge the 150-year old retailer of packaged coffee products, Folgers, to The J M Smucker Company in a tax-free all-stock deal. The deal includes the assumption of nearly $350 million in Folgers debt. Smucker will also issue a one-time $5 per share dividend to its shareholders. On completion of the deal, P&G will hold nearly 53.5 per cent of Smucker.

Smucker sells Pillsbury baking products and Hungry Jack pancakes along with several other brands, along with its own jams and jellies. The companies say if Smucker owns Folgers for all of 2009, the combined company anticipates $4.7 billion in annual sales.

In August 2007 P&G had outlined plans to divest the slow-growth businesses to a strategic acquirer rather than a private equity firm. Though the businesses to divested were not identified, analysts widely believed Duracell batteries, Braun appliances, Pringles potato chips, and Folgers would be on axed P&G's portfolio.

P&G has even earlier divested brands not in line with its growth strategy; Earlier in 2001 it had sold Smucker its Crisco shortening and Jif peanut butter brands for around$750 million in shares, followed by the sale of  Sunny Delight and Punica juice-based drinks to PE firm J W Childs Associates LP in 2003 and the Pert Plus shampoo line and Sure deodorant brand to buyout shop  Najafi Cos, in 2006.

"Strategically, P&G has exited certain categories in order to focus on our core businesses and enhance the growth profile of the portfolio," said A.G. Lafley, Chairman of the Board and Chief Executive Officer of Procter & Gamble. "The structure and terms of this transaction deliver on the goals we stated for the separation of the coffee business from P&G. This transaction maximizes the after-tax value of the coffee business for P&G shareholders and minimizes earnings per share dilution."

"Smucker has proven to be an excellent steward of Jif and Crisco since taking ownership of the brands from P&G in 2002 and I am confident that Folgers will continue to thrive as part of The J. M. Smucker Company," added Lafley. "Smucker's core beliefs, values, and principles are very much the same as those of P&G. We cannot think of a better long-term home for P&G's former coffee employees and brands than Smucker."