Thursday, October 11, 2001

P&G to spin off Jif and Crisco

J.M. Smucker Co. buying brands for $675M in stock

By Cliff Peale
The Cincinnati Enquirer

        They make the perfect sandwich, and now Procter & Gamble Co. and J.M. Smucker Co. hope to combine peanut butter and jelly into a tasty food company for shareholders.

        P&G will sell its Jif and Crisco brands to Orrville, Ohio-based Smucker for about $675 million in stock plus tax savings of $350 million, the companies said Wednesday. In return,P&G shareholders will end up with 52 percent of Smucker.

[photo] Richard Smucker (left), president and co-CEO, and Tim Smucker, chairman and co-CEO, will be folding P&G's Jif and Crisco brands into the J.M. Smucker Co.
(Associated Press photo)
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        “You think about complementary businesses, and you don't get much better than this,” said Doug Christopher of the Los Angeles brokerage firm Crowell, Weedon & Co.

        Smucker will keep more than 400 employees from P&G's Crisco plant in Ivorydale and Jif plant in Lexington. Fewer than 50 administrative jobs were folded into P&G's restructuring, and those workers will be transferred within the company or could take a voluntary severance package.

        P&G will free itself from struggling food businesses and concentrate on higher-profit areas such as health care and beauty care, chairman John Pepper said. That's good news for the company's sales, profits and stock price, he said.

        The deal will leave Cincinnati-based P&G with only Folgers coffee, Pringles snacks and Sunny Delight fruit drink in the food-and-beverage unit. Sales in the unit fell 11 percent for the year ended June 30.

        P&G announced in April it would take offers to sell or swap Jif and Crisco.

        The deal starts with P&G spinning off Crisco and Jif into a separate holding company. Smucker, a leading maker of jellies and jams, then will immediately pay each P&G shareholder one Smucker share for every 50 P&G shares to merge with that company.

    Procter & Gamble Co. will build its first South American pet-food plant in Argentina, spending about $20 million, the company said Wednesday.
    The company will make Iams and Eukanuba pet foods at the plant in Pilar. Construction has started, an Iams spokesman said.
    Iams operates six plants now, all in North America or Europe.
        The companies are awaiting an IRS ruling on the deal, and hope to close it in April. If itwere a straight cash deal, the tax costs would have been about $350 million, P&G said.

        “This helps implement our strategic plan ... and P&G shareholders will be able to share in Smucker's growth in a tax-efficient way,” Mr. Pepper told Wall Street analysts in a Wednesday morning conference call.

        “I love it, and I think Wall Street likes it too,” said Marvin Roffman of Roffman Miller Associates in Philadelphia, which owns about $1 million in P&G shares.

        He said P&G shareholders should benefit from the growth prospects of the expanded Smucker.

        Smucker has had its eye on Jif for 20 years, while P&G has been trying to pare its long-troubled food business since A.G. Lafley took over as chief executive in June 2000.

        Since the brands all share similar aisles in most grocery stores, the transition should be easy, co-CEO Richard Smucker said. He said Crisco needed more marketing support, while Jif should see increased results quickly.

        The deal will double the number of Smucker shareholders to 49 million, double sales to $1.3 billion, and will triple profits.

        “It's a great strategic fit for us,” Richard Smucker said. “It gives us a critical mass to drive growth in the retail market.”

        Smucker already owns Goober, which combines peanut butter and jelly in one jar. It also sells five varieties of natural peanut butter.

        P&G officials said the deal shouldn't affect its earnings estimates for the next two years.

        Crisco and Jif each earn about $65 million annually before taxes and interest. Last year, each posted sales of about $300 million, and both are No. 1 in their categories.

        But P&G is consolidating behind its biggest and most profitable brands, and neither Jif nor Crisco meet that definition. Mr. Pepper referred to Smucker as “a great food company.” That's a designation P&G is no longer trying to reach, Mr. Lafley has said.

        P&G shares closed at $73.34, up 80 cents, Wednesday, while Smucker rose $5.23 to $31.12.


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