"With approximately two-thirds of U.S. households having at least one family pet, we will now be able to serve the mealtime and snacking needs of the whole family," CEO Richard Smucker said, in a written statement.
CLEVELAND, Ohio -- The J.M. Smucker Co., already a major player in almost every supermarket category it sells in, now seeks to dominate the $21 billion pet food and snacks aisle.
The Orrville manufacturer of Folgers Coffee, Jif Peanut Butter and Smucker's Preserves on Tuesday announced an agreement to acquire Big Heart Pet Brands, the nation's largest stand-alone producer, distributor and marketer of branded pet food and pet snacks.
It is the largest acquisition in Smucker's 115-year history, and follows its pattern of buying its way into new food categories. In November 2008, Smucker bought the No. 1-selling Folgers Coffee business, and in June 2002, it bought Jif Peanut Butter and Crisco Oils. Both deals were from Procter & Gamble Co.
Big Heart Pet Brands, based in San Francisco, has nearly 2,500 employees. Its brands include: Meow Mix, Milk-Bone, Kibbles 'n Bits, 9Lives, Natural Balance Pet Foods, Pup-Peroni, Gravy Train, Nature's Recipe, Canine Carry Outs, Snausages, Meaty Bone, Pounce, Jerky Treats, Alley Cat, and Milo's Kitchen.
The cash-and-stock deal is valued at $5.8 billion, which includes about $2.6 billion of net debt. Subject to regulatory approvals, the transaction is expected to close by April 30, the end of its 2015 fiscal year.
"The acquisition of Big Heart Pet Brands supports our purpose of 'helping to bring families together to share memorable meals and moments,' as we recognize that pets are cherished members of the family," said Smucker's Chief Executive Richard Smucker, in a written statement. "With approximately two-thirds of U.S. households having at least one family pet, we will now be able to serve the mealtime and snacking needs of the whole family.
"We look forward to working with Big Heart Pet Brands' experienced and talented team to leverage our combined capabilities and scale, while further enhancing value for all our constituents," he said.
Smucker called the deal "an excellent strategic fit for our company," saying it gives the company an immediate and significant presence in one of the largest and fastest-growing grocery categories in the U.S. and fits with its desire to "own and market leading center-of-the-store food brands in North America." Pet snacks, for example, are growing by a double-digit percentage.
The company also anticipates annual synergies of about $200 million within the first three years of ownership, mostly because Smucker sells to many of the same retailers as Big Heart does. That includes $40 million to $50 million in synergies expected in fiscal 2016.
"This combination further enhances our strategy of owning leading food brands in attractive center-of-the-store categories," Smucker said. "The pet food business will become a third platform for growth for our company, along with our existing food and beverage businesses.
Big Heart President and Chief Executive Dave West will head the company's pet food business and be nominated to Smucker's board of directors. He said he was drawn by Smucker's track record of growing its home grown and acquired brands and by its family- and employee-centered corporate culture. "Strategically, this is a great choice. This is a great place for us to land," he told analysts on Tuesday.
Big Heart Pet Brands, which until Feb. 18, 2014, was called the Del Monte Corp., is owned by a consortium of investors led by four private equity firms: Kohlberg Kravis Roberts & Co. LP; Vestar Capital Partners; Centerview Capital; and AlpInvest Partners Inc. The company changed its name after selling off its fruit, vegetable and other consumer foods.
J.M. Smucker said it will acquire all of Big Heart's outstanding equity, issue about 17.9 million shares of its common stock to the current owners, and pay about $1.3 billion in cash. It will also assume about $2.6 billion in Big Heart's net debts, which it will refinance after the deal closes. The 17.9 million shares amount to about 14 percent of the company's 120 million shares outstanding.
J.M. Smucker expects Big Heart to contribute about $2.4 billion in sales in fiscal 2016, and grow 4 percent to 5 percent annually over the next several years.
The deal comes with Big Heart's corporate facilities in San Francisco, Pittsburgh, and Burbank, California; manufacturing facilities in Decatur, Alabama; Topeka, Kansas; Lawrence, Kansas; Buffalo, New York; and Bloomsburg, Pennsylvania; as well as some research and development facilities, sales offices and distribution centers.
The company expects about $225 million in one-time costs associated with the acquisition. Smucker announced the acquisition after the markets closed on Tuesday. It is scheduled to report third-quarter fiscal 2015 earnings on Friday, Feb. 13.