J.M. Smucker will acquire P&G’s Jif peanut butter brand and Crisco cooking oils. The merger of Jif peanut butter and Crisco shortening brands with Smucker, the largest strawberry jam manufacturer in the US, is a deal reported to have been two decades in the making, P&G’s decision to spin the company off to its shareholders is a welcome improvement on its previously shaky commitment to exiting non-core businesses.
P&G shareholders will receive one new share in the Orville, Ohio-based group for every 50 P&G shares they own, which will give P&G shareholders a 52.5% stake in Smucker. The reformed Smucker will have sales of about $1.3 billion, double current sales. In FY2003, the first full year after the deal closes, Smucker said it expects earnings before one-time costs to be between $95-105 million, almost three times current levels.
According to Tim Smucker, chairmen and co-chief executive, his father Paul began discussions with P&G 20 years ago about the possibility of bringing the core ingredients of the peanut butter and jelly sandwich together.
The transaction finally came about due to P&G’s decision to focus on fewer, market leading brands. However, P&G appears to be suffering separation anxiety. Earlier this year, the company announced a joint venture with Coke that would have combined P&G’s Pringles potato chips and Sunny Delight juice drinks with Coca-Cola’s Minute Maid juices and Hi-C, Five-Alive and Fruitopia drinks. Although the deal has since fallen apart, the companies have continued talks about a scaled down version of the venture, even test-shipping Pringles on Coca-Cola trucks.
Since 1998, food and beverages revenues at P&G have dropped from $4.3 billion to $4.1 billion. As a percentage of total revenue, food and beverages have fallen from 11.5% to 10.3%. Revenue from household and personal products, on the other hand, now comprise the remaining 90% Despite a portfolio of highly recognizable food and beverage brands, including Pringles, Folgers and Sunny Delight, P&G should pursue divesture of these non-core, non-performing brands.
With revenues falling, and the company posting its first quarterly loss in eight years for Q4 2001, P&G should focus its energies on revamping its own corporate and brand structure. Spinning off the merged entity rather than retaining a share was a positive move for the struggling giant.(c) 2001 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.