CLEVELAND - Jams and jellies maker J.M. Smucker made a $2.95 billion bid for more of the breakfast table today, announcing all-stock deal for Folgers coffee.
Smucker also will assume about $350 million of Folgers' debt in the deal with current owner Procter & Gamble.
Smucker will issue a special $5 dividend to Smucker shareholders at a to-be-determined record date, before the acquisition. P&G shareholders will receive about 53.5 percent of Smucker in a tax-free stock-for-stock acquisition after the dividend.
Folgers, which dates to a 19th-century California family business, has been expanded with gourmet and other specialty lines in recent years.
J.M. Smucker Co., based in Orrville, south of Cleveland, expects the acquisition will boost profits by about 9 percent, excluding costs, if it owns the brand for the entire 2009 fiscal year.
With the addition of Folgers, Smucker said it expects sales to increase to nearly double to about $4.7 billion. Discounting costs from the deal, Smucker said it expects to make $3.45 to $3.50 per share in the fiscal year beginning July 1.
The deal with the Cincinnati-based P&G, a consumer products company that makes Pampers, Gillette Fusion razors and Head & Shoulders shampoo, is expected to close in the fourth quarter.
"Coffee is the perfect complement to breakfast or dessert - two areas we know a lot about," said Richard Smucker, president and co-chief executive of Smucker. "We are excited about the addition of Folgers and the many dimensions this transaction brings in our quest to meet and exceed consumer expectations."
Tim Smucker, chairman and co-chief executive, said in a conference call with analysts that the acquisition would give Smucker a 10th top-ranked brand. "The addition of Folgers clearly aligns with our strategy," he said.
A Deutsche Bank research paper said the deal fit with the Smucker strategy of acquiring leading brands in North America and P&G's practice of "weeding the garden" of slow-growing brands without global potential.
Smucker shares rose 2.5 percent, or $1.36, to $55.11 in early trading Wednesday. The shares have traded between $42.75 and $64.32 the past year.
P&G last year raised the possibility of divesting slower-growing brands, and in January said it might spin off Folgers and give shareholders the option of exchanging P&G stock for shares in the new coffee company.
"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 and CEO 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."
While Folgers has been the nation's No. 1 ground coffee brand and is among P&G "billion-dollar brands" in annual sales, it has faced increased competition from Starbucks and other coffee sellers.
It is not the first deal both companies have done. Smucker in 2002 bought Jif peanut butter and Crisco shortening from P&G in an all-stock deal valued at nearly $1 billion.
P&G shares rose 53 cents to $65.94. The shares have traded between $60.76 and $75.18 over the last year.
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