J.M. Smucker (NYSE:SJM) said today that it's slicing itself a bigger niche in grocers' baking aisles by acquiring International Multifoods (NYSE:IMC). The deal will add brands like Pillsbury, Hungry Jack, and evaporated milk manufacturer Pet to Smucker's sugary lineup.
Through the agreement, Smucker will obtain International Multifoods' Pillsbury baked goods, which include cake mixes and frostings. General Mills (NYSE:GIS) sold that part of the Pillsbury line to International Multifoods, although it still distributes several other Pillsbury products, such as frozen dough and pizzas. (It's a little confusing, but both companies use the Pillsbury name and the famous Doughboy trademark for their respective products.)
The roughly $840 million deal includes the assumption of $340 million in International Multifoods debt. Smucker will provide payment in 80% stock and 20% cash, at $25 per share. That's a little more than a 25% premium from International Multifoods' closing price on Friday.
If approved, the deal is expected to close by the end of June; Smucker expects the acquisition to add to earnings by 2005. The company plans to fund the acquisition using existing cash and outside financing.
Smucker is best known for its jams and jellies, as well as the Jif peanut butter brand it recently acquired from Procter & Gamble (NYSE:PG). Another recent brand addition, also from P&G, was Crisco shortening. If Crisco seemed a little jarring as a Smucker's brand before, considering the company's PB&J focus, maybe it makes a little more sense now. Pillsbury, of course, provides an array of cake mixes, frostings, and other items for people who like the instant approach to baking.
Last time Smucker discussed its numbers, of course, it pointed to a strong year-end based on what it calls its "Fall Bake" season -- which includes holiday baking, when even the non-culinary among us are often inspired to grab cookie sheets and bundt pans and preheat ovens. That Fall Bake season should get shakin' with the addition of a strong brand in baking.
On the other hand, International Multifoods has shown signs of strife for a while, with some alarming notes in its third quarter, as net sales dropped 12% for its array of products. Competition's tough for Pillsbury baked goods line, considering other well-known rivals such as General Mills' Betty Crocker and Aurora Foods' Duncan Hines lines. In the pancake category, Hungry Jack has to face off with PepsiCo's (NYSE:PEP) Aunt Jemima.
While International Multifoods' shares zoomed 25% higher today, just shy of the $25-per-share purchase price, Smucker shares drifted about 5% lower at one point, indicating some dubious feeling about the deal. It's not too hard to see Smucker's point of view. Though the jams and jelly maker sees the pricey deal as adding "icon" brands, there's tough competition in the baking category. Further, recent dietary trends that frown on sugar and carbohydrates don't help.
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Alyce Lomax does not own shares of any companies mentioned.
