Jif and Crisco To Join Smucker

Jam-maker J.M. Smucker Co. will pay $1 billion in stock to acquire Procter & Gamble Co.’s Jif peanut butter and Crisco shortening businesses. “Not only is this transaction very accretive to earnings but it provides significant cash flows when coupled with our already strong balance sheet,” said Richard Smucker, president and co-CEO. “Just as important, it will strengthen our position to acquire other complementary leading food brands.” Prior to deal completion, the Jif and Crisco brands and associated assets will be spun off from P&G and then immediately merged with J.M. Smucker. P&G shareholders will receive one share of new J.M. Smucker stock for every 50 shares they hold in P&G. The deal is structured to allow P&G shareholders to avoid any taxes on the change in control. They will own 53% of Smucker when the deal is completed. However, the new ownership arrangement calls for existing Smucker shareholders to retain control over major decisions despite holding a minority share in the company. The Smucker family stake will shrink from 30% to about 16%. The acquisition will double sales to $1.3 billion and will lift earnings before one-time costs to $95 million to $105 million, nearly three times current levels, according to a Smucker corporate statement. The deal is part of Cincinnati-based P&G’s plan to shed non-core brands and to largely exit the food business. The company intends to concentrate on personal care products. John Miller, a portfolio manager at Ariel Capital Management, says that the purchase of the P&G brands by Smucker is part of a consolidation trend among food products producers. “You see food companies getting together because they have to in order to have leverage with the supermarket industry.” He adds that this impulse also drove such recent food industry deals as Kellogg Co.’s acquisition of Keebler Foods Co., General Mills Inc.’s purchase of Pillsbury Inc., Philip Morris Cos. Inc.’s acquisition of Nabisco Inc., and the acquisition of Best Foods by Unilever NV. “The only way these food companies can improve their margins and strike better deals with supermarkets is to add scale. Otherwise, the chains can just about dictate what they want to pay.” The Crisco acquisition is expected to contribute the same level of profitability as the Jif unit, although it represents a new category for Smucker. “Crisco is within its core competency but it may take more patience for Smucker to integrate it,” Miller says. Even if the Crisco brand doesn’t live up to management’s expectations, the Chicago-based analyst thinks it would still have a lot of value if Smucker decides to unload it. Miller also says that one of the most noteworthy aspects of the deal is that it is the first time the market has seen such a large acquisition, relative to the acquiring company itself, where the price moved higher for the acquirer as well as the target. Immediately after the deal’s announcement, Smucker’s stock jumped 20%, and a week later was still up 15%, he notes.