Jelly giant J.M. Smucker has made a huge leap toward diversification in a $5.8 billion deal to buy Big Heart Pet Brands, the maker of MeowMix, Milk Bone, Milos Kitchen and several other pet food brands.
The 118-year old Smuckers is known for its Jif Peanut Butter, Smucker’s jelly’s and Folger’s coffee but this deal will also put it atop the pet food world.
“Our company is about more than making and marketing products,” CEO Richard Smucker said during a Feb. 3 conference call with analysts to discuss the transaction.
“At Smucker’s, our purpose is helping to bring families together to share memorable meals and moments, and we recognize that pets are cherished members of the family with approximately two-thirds of U.S. households having at least one family pet. This acquisition further supports our purpose as it enables us to now serve the mealtime and snacking needs of the whole family,” Smucker added.
He told analyst the deal was strategic in that it fits with Smuckers strategy to offer center-of-the-store brands.
“Second, the acquisition provides greater scale and strategic balance to the Smucker’s portfolio as the pet food business will become the third platform for growth along with our existing food and beverage businesses. And, third, the transaction is financially compelling. It increases Smucker’s annual net sales to approximately $8 billion while enabling us to capitalize on the growth of the pet food and pet snack category,” Smucker said.
J.M. Smucker estimates Big Heart Pet Brands’ net sales will be approximately $2.3 billion and adjusted earnings before interest, taxes, depreciation, and amortization will be approximately $450 million for Big Heart Pet Brands’ fiscal year ending May 3, 2015.
Under the terms of the agreement, J.M. Smucker will acquire all of the outstanding equity of Big Heart Pet Brands. The company will issue approximately 17.9 million shares of its common stock to the shareholders of Big Heart Pet Brands’ holding company and pay $1.3 billion in cash, subject to adjustment for working capital and certain other amounts. The company also will assume approximately $2.6 billion of net debt of Big Heart Pet Brands, which will be refinanced by the company upon closing.
The transaction includes leased corporate facilities in San Francisco and Burbank, Calif.; and Pittsburgh; and owned or leased manufacturing facilities in Decatur, Ala.; Topeka and Lawrence, Kas.; Buffalo, N.Y.; and Bloomsburg, Pa.; as well as several research and development facilities, sales offices and distribution centers.
The transaction is expected to close by April 30. J.M. Smucker expects to incur approximately $225 million in one-time costs related to the transaction, of which approximately $150 million are expected to be cash charges. One-time costs are anticipated to be incurred primarily over the next three fiscal years, with approximately one-half of the costs expected to be recognized in fiscal 2016.
J.M. Smucker and Big Heart Pet Foods are both suppliers to Wal-Mart Stores with separate sales offices in Northwest Arkansas.