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Orrville jelly and jam maker's $3.3 billion purchase could double its sales
By Betty Lin-Fisher
Beacon Journal business reporter
Published on Thursday, Jun 05, 2008
In its largest acquisition, J.M. Smucker Co. of Orrville on Wednesday said it is adding Folgers coffee to a growing line of products.
Smucker, known for its jellies and jams, agreed to purchase the Folgers coffee unit of Procter & Gamble of Cincinnati. The all-stock deal is valued at $3.3 billion, including the assumption of an estimated $350 million of Folgers debt. Earlier this year, Procter & Gamble had said it wanted to separate its coffee brands.
This isn't the first deal between Smucker and Procter & Gamble. In 2002, Smucker purchased the Jif peanut butter and Crisco oil brands for $1 billion.
''Coffee is the perfect complement to breakfast or dessert — two areas we know a lot about,'' Richard Smucker, president and co-chief executive of the company with his brother, Tim, said in a news release.
In a conference call with analysts Wednesday morning, Procter & Gamble Chairman and
Chief Executive A.G. Lafley said he was confident Folgers would continue to thrive under Smucker ownership.
''The Jif and Crisco experience has proven this type of transaction is a recipe for success,'' he said.
In a telephone interview after returning to Orrville from Cincinnati, Tim Smucker, chairman and co-CEO, said the company has been interested in the Folger line since it acquired Jif and Crisco. ''It'll give us great critical mass,'' he said.
Asked whether there is a limit to what Smucker might be interested in acquiring, he said ''we're interested in'' any product in the center of a grocery store that has the potential of being a No. 1 brand.
'High-ring' product
Coffee, a big category in grocery stores, is called a ''high-ring product'' because of its fairly high retail price, even when it's on special, said Jim Trout, Acme Fresh Market's vice president of merchandising and sales.
''I do think it complements breakfast, for sure,'' Trout said. ''Anything that Smucker has touched has actually worked out very well for Acme and our customers.''
Trout said Folgers competitor Maxwell House has traditionally done better in the Akron market, but Folgers has been gaining traction with promotions in the last three years. He expects the promotion to increase with Smucker ownership.
The acquisition is expected to double Smucker sales by the end of the first full fiscal year of operation in 2009, from $2.5 billion to $5 billion. The transaction is expected to close by October or November, Smucker Director of Corporate Communications Maribeth Badertscher said.
Billion-dollar brand
In a news release, the company said that with the addition of Folgers, the size of categories the company participates in will increase to about $15 billion, compared with $1 billion in 2002. Folgers will be the company's first billion-dollar brand, Richard Smucker said.
Smucker employee numbers will also grow. The company currently has about 3,300 employees nationwide, with about 650 at the headquarters in Orrville and 400 at the Orrville plant. The acquisition will bring on 1,250 Folgers employees at its offices in Cincinnati and plants in New Orleans, Kansas City, Mo., and Sherman, Texas, along with a distribution center in New Orleans.
Badertscher said Smucker will remain headquartered in Orrville; the company wants to take 18 to 24 months to determine whether there will be any organizational changes from the acquisition. The Folgers plants will remain open, she said.
Smucker already has a significant presence in Cincinnati with its Crisco plant and its commodities buying group, she said.
Big news in Orrville
Jenni Reusser, president of the Orrville Area Chamber of Commerce, said the Folgers acquisition was big news in town.
''As always, we stand and applaud and cheer them on. We appreciate so much their presence here and their involvement in the community. We always stand very proud when we read in the paper what they're making happen in their world,'' Reusser said.
Trout, of Acme Fresh Market, said Northeast Ohio should be excited to have a company of Smucker's caliber in its backyard.
''We're extremely fortunate to see a local company being as aggressive as they are and buying these brands and bringing jobs. So far, [its] track record has been extremely good,'' he said.
It was a big day at the Smucker headquarters on Strawberry Lane in Orrville, where about 600 employees were able to assemble for the first time in a large conference room in a newly opened building, Badertscher said.
All Smucker employees at other locations received a videotaped message from Tim and Richard Smucker in the morning telling them of the announcement, she said. The Smuckers will visit the new facilities in the next few days, she said.
Smucker was founded in 1897. Folgers was founded in 1850 in San Francisco. Since 2001, Smucker has acquired the brands Jif, Crisco, Pillsbury, Hungry Jack, Eagle Brand condensed milk and Europe's Best Inc., a private company headquartered in Montreal, Quebec.
Last month, the company said it was acquiring the Knott's Berry Farm food brand from Con-Agra Foods Inc.
Analyst reaction good
Analyst reaction was positive. The firm Stephens Inc. said it viewed the deal positively in view of the Smucker practice of buying up strong brands ''and revitalizing them with management attention and advertising support.''
Susan Fournier of Boston University's management school called the deal ''a match made in brand heaven'' because there were pluses for P&G and Smucker.
In Cincinnati, Daniel C. Kiley manages money for more than 500 P&G retirees, most of whom still own company stock. Kiley said the deal came at a good time, with the economic downturn prompting some consumers to make coffee at home instead of buying lattes at fancy coffee shops.
''Consumers are under pressure because of the higher food and energy prices,'' Kiley said. He said the majority share of Smucker stock that will be held by P&G shareholders after the deal is finished reflected the scale of the transaction.
Smucker stock closed up 12 cents to $53.87 Wednesday.
It is down 6.8 percent from a year ago, but up 6 percent for 2008.
P&G stock closed up $1.04 to $66.45. It is up 7.4 percent from a year ago, but down 8.5 percent in 2008.
The deal is being called an all-stock ''reverse Morris Trust'' transaction, meaning Smucker is merging with Folgers to create a new Smucker, with P&G shareholders receiving approximately 53.5 percent of Smucker's shares.
The Associated Press contributed to this article.
Betty Lin-Fisher can be reached at 330-996-3724 or at blinfisher@thebeaconjournal.com.
In its largest acquisition, J.M. Smucker Co. of Orrville on Wednesday said it is adding Folgers coffee to a growing line of products.
Get the full article here.
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