Procter & Gamble has been the proud owner of Folgers, the nation's top-selling packaged coffee brand, for 45 years. Smucker referred to the brand as iconic and said that the company plans to market it alongside other products such as Jif and Crisco, which Smucker acquired from P&G. In January, P&G announced that it would be separating or spinning off Folgers as it shifted its focus to faster-growing segments such as health and beauty. President and CEO of P&G, A.
G. Lafley, stated in a statement that selling the business to Smucker in a tax-free stock deal meets the targets that P&G set when it first announced its plans to divest from Folgers. This deal is also more beneficial for P&G shareholders than a direct spin-off due to cost savings and other advantages that Smucker can gain by combining Folgers with its existing portfolio, Lafley said during a conference call with analysts. To execute the deal, P&G will distribute Folgers to P&G shareholders, with a simultaneous merger of Folgers with Smucker.
Sales are expected to increase 6 percent annually in the long term, with gains of 8 percent, according to Smucker. The company also mentioned that it will continue to seek out acquisitions to help drive sales. The addition of Folgers will add more products for Smucker to offer retailers, allowing for more marketing opportunities, said Richard Smucker, president and co-CEO of Smucker. With the Folgers agreement, P&G shareholders will end up owning 53.5 percent of Smucker and current Smucker shareholders will own the rest.
P&G's decision to sell Folgers is a strategic move that will maximize the after-tax value of the coffee business for its shareholders while minimizing earnings-dilution per share. It also provides an opportunity for Smucker to expand its portfolio and gain access to new markets. The combination of Folgers with Smucker's existing products will create a powerful portfolio of brands that can be marketed together for greater success.