Smucker to Acquire Jif and Crisco

Jelly maker J.M. Smucker Co. agreed Wednesday to acquire Procter & Gamble Co.’s Jif peanut butter and Crisco shortening brands for about $813 million in stock.

The deal, prompted by P&G;’s ongoing effort to shed brands and trim its food business, is structured as a tax-free transaction for both companies and P&G; shareholders, who will own 53% of a new Smucker company once the merger is completed.

It also ends Smucker’s 25-year courtship of Jif that began when then-Chairman and Chief Executive Paul Smucker, grandson of the company’s founder, approached P&G; Chairman John Smale and expressed his interest in the peanut butter maker.

The stock value of the deal jumped 20% on Wednesday, as Smucker shares rose $5.26 to $31.15 on the New York Stock Exchange. Shares of Cincinnati-based P&G; rose 80 cents to $73.34, also on the Big Board.

Smucker said the purchase will double its annual sales to about $1.3 billion and nearly triple earnings, before one-time costs associated with the transaction, in fiscal 2003, the first full year after the deal closes.

It also will double Smucker’s number of shares and will raise its market capitalization, bringing with it additional scrutiny for the management, which held its first conference call with investors in announcing the deal Wednesday.

The complicated transaction calls for P&G; to spin off its Jif and Crisco brands and assets. They will then be immediately acquired by Smucker, which makes everything from jam to jellies to the filling inside Kellogg Pop-Tarts. The deal values the brands and assets at more than $1 billion on a cash-equivalent basis.

Under the new company, existing Smucker shareholders will retain voting control over major decisions such as mergers, sale of assets and amending the company’s charter, said Smucker Chief Financial Officer Steven Ellcessor.

The Smucker family, which has run the company since it was founded in 1897, will cut its equity stake in the new company to about 16% from 30%, though its voting stake on major decisions will remain higher.

P&G; originally was hoping to swap the Jif and Crisco businesses for a consumer products unit but was unable to structure such a transaction to be tax-free, sources familiar with the situation said.

The transaction calls for P&G; shareholders to receive one share of Orrville, Ohio-based Smucker for every 50 P&G; shares, resulting in 26.1 million new Smucker shares.

P&G; said it expects the deal to slightly cut earnings in fiscal 2002, which began in July, but said it is still comfortable with the range of earnings estimates for the year.

The sale will leave P&G; with a food business comprising Pringles potato chips, Folgers coffee and Sunny Delight juice drinks. P&G; had tried to divest Pringles and Sunny Delight into a joint venture with Coca-Cola Co., but that plan collapsed in August when Coca-Cola pulled out.

P&G; officials said Wednesday that the company had learned a great deal about distributing Pringles while working with Coca-Cola. It added that it was talking to other companies about helping it to expand distribution of a brand that has more than $1 billion in sales.

The company has said all along that it remains committed to Folgers, another $1-billion brand.