J.M. Smucker Company (P&G Company) 425
Filed by The J. M. Smucker Company
Pursuant to Rule 425 under the Securities Act of 1933
and Deemed Filed Pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: The Procter & Gamble Company
Commission File No.: 001-00434
OPERATOR:
Good morning and welcome ladies and gentlemen to The J. M. Smucker Company and Procter and Gamble
conference call. At this time I would like to inform you that this conference is being recorded
and that all participants are in a listen only mode.
At the request of the companies, we will open the conference up for questions and answers after the
presentation. I will now turn the conference call over to Mr. Mark Belgya, Chief Financial
Officer. Please go ahead sir.
MARK BELGYA:
Good morning and thank you for joining us. This is Mark Belgya, Smuckers Chief Financial Officer.
I would like to welcome you to this joint conference call between The J. M. Smucker Company and
Procter and Gamble to discuss the merger of the Folgers coffee business into Smucker.
Joining me today from Smuckers are:
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Tim Smucker, chairman and co-CEO; |
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Richard Smucker, president and co-CEO; |
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Vince Byrd, senior vice president, consumer market; |
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Steve Oakland, vice president and general manager, consumer oils and baking; and from
Procter & Gamble we have: |
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A. G. Lafley, chairman and CEO; and |
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Clayt Daley, vice chairman and CFO. |
If you have not seen todays press release, it is available on both web sites at smuckers.com and
pg.com. If you have any follow-up questions or comments after todays call, please feel free to
contact Mark Erceg or John Chevalier of investor relations at P&G, or at Smucker, please contact
Sonal Robinson, in investor relations, or me.
I would like to remind you that certain statements in this presentation and during the question and
answer period that follows may relate to future events and expectations for both Smucker and P&G,
and as such, constitute forward-looking statements within the meaning of the Private Securities
Legislation Reform Act of 1995. Actual results could differ materially from those projected in the
forward-looking statements. I invite you to read the full disclosure statement of Smucker and P&G
concerning such forward-looking statements in the press release.
With that, Ill turn the call over to Tim.
TIM SMUCKER:
Thank you, Mark. Good morning everyone and thank you for joining us.
We are pleased to announce a truly remarkable transaction that brings one of Americas best-known
brands into the Smucker family of
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brands, and allows us to offer consumers yet another number one brand in a key category. We have
reached an agreement with Procter & Gamble to merge the Folgers coffee business into the Smucker
Company. We are proud to welcome the Folgers and Millstone brands into our widely recognized
portfolio of brands that includes Smuckers, Jif, Crisco, Pillsbury, Eagle Brand, Hungry Jack,
Robin Hood and Bicks.
Folgers, founded in 1850, is similar to our core brands, with a rich heritage, high quality product
offerings and strong consumer loyalty. Over the years, Folgers has created some of the most
memorable marketing and advertising messages, including the well-known tagline the best part of
wakin up is Folgers in your cup.
As you well know, our company and people are about more than making and marketing products.
Indeed, at Smucker our purpose is to help families share memorable meals and moments. The Smucker
family of brands is a trusted part of everyday meals, casual get-togethers and special occasions
all of which foster family connections and lasting memories.
Folgers has a long tradition of being part of memorable meals and is undoubtedly a perfect fit in
our family of brands. A freshly brewed cup of coffee is the perfect complement to breakfast or
dessert two areas we know a lot about. Not surprisingly, these categories share very
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similar, core consumer segments, opening up many opportunities for brand marketing synergies.
Let me briefly discuss the rationale behind the transaction and why we are so enthusiastic about
the Folgers business.
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First, it is a great strategic fit as the number one retail packaged coffee brand in the
U.S., the addition of Folgers clearly aligns with our strategy to own and market number one food
brands in North America. |
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Second, the addition of Folgers strengthens our portfolio of brands, adding our tenth number one
brand. We will cross a new threshold in terms of size and scale with the addition of our first
billion dollar brand. |
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Third, the transaction is value-creating and financially compelling. For Smucker, the
transaction: |
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Will be accretive on a full year basis; |
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Increases annual net sales to almost $5 billion in the first full year; |
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Expands margins and increases earnings; and |
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Significantly increases free cash flow. |
With the addition of Folgers, the size of the categories in which we participate increases to
approximately $15 billion. Coffee, like fruit spreads, peanut butter, cooking oils and flour are
staple items included in more than 80 percent of household pantries. We will be well
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positioned for the long-term to meet a wide variety of consumer needs. This powerful combination
provides us with increased size and scale that will benefit all of our businesses, position us for
future growth and deliver long-term shareholder value.
Smucker and P&G have a proven track record of working together. We added P&Gs Jif and Crisco
brands in 2002, and demonstrated our collective ability to transition the business. We are
confident that Smucker is a great home for the Folgers brands and the Folgers people, and we expect
both to prosper as part of the Smucker family of brands. The combination will provide greater
opportunities for all employees both the existing Smucker employees and the Folgers employees.
Now Id like to turn the call over to Richard to provide some additional transaction details and
the financial benefits.
RICHARD SMUCKER
Thank you, Tim and good morning. First, let me say that I share Tims enthusiasm, as we add one of
Americas best known brands into the Smucker family. We look forward to building upon its heritage
and equity.
Now let me describe the transaction:
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It will be structured as an all-stock reverse Morris Trust transaction that is tax-free to Smucker,
P&G and P&G shareholders.
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P&G shareholders will receive approximately 63 million Smucker shares and own 53.5% of the
combined company. Current Smucker shareholders will own approximately 46.5% of the combined
company. At the completion of the transaction, Smucker will have approximately 118 million
shares outstanding. |
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As part of the transaction, Smucker will assume $350 million of Folgers debt. |
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Prior to the merger, Smucker shareholders, as of the record date, will receive a special
dividend of $5 per share. |
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The transaction is expected to close in the fourth quarter of calendar 2008, subject to
customary closing conditions including regulatory and Smucker shareholder approvals. |
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We expect to incur approximately $100 million in one-time costs related to the transaction
over the next 12 to 24 months. |
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We expect synergies in excess of $80 million, with a portion of these savings realized
during fiscal 2009 and the entire amount by the end of fiscal 2010. Most of these savings
will be achieved through efficiencies gained by combining the businesses and supply chain
enhancements. |
As part of the transaction, we expect our debt to increase by approximately $650 million. Due to
the nature of the reverse Morris Trust structure, Smucker will have a stronger balance sheet with a
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conservative leverage profile, as our debt-to-EBITDA ratio will be below two times. Free cash
flows are expected be approximately $400 million and will allow Smucker to continue its strong
dividend practice, to continue to make strategic acquisitions and to repurchase shares.
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The merger provides significant financial benefits. Assuming Folgers was owned for all of
fiscal year 2009: |
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Net sales are expected to increase to approximately $4.7 billion. |
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We expect the transaction to be accretive by approximately 9 percent to
fiscal year 2009 earnings per share, including synergies, excluding merger and
integration costs, and after giving effect to the impact of the special dividend to
Smucker shareholders. |
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The profit contribution from Folgers, along with full synergy benefits, are
expected to result in EBITDA of approximately $820 million. This represents an
increase in the EBITDA margin of nearly 300 basis points. |
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Results for fiscal year 2009 will depend on the actual closing date.
Assuming the transaction closes early in the fourth quarter of calendar
2008, we expect: |
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Fiscal 2009 net sales of approximately $4 billion; |
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Fiscal 2009 earnings per share, before one-time costs associated with the
transaction, of between $3.45 to $3.50; and |
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Fiscal 2010 earnings per share, before one-times costs associated with the
transaction, of between $3.62 to $3.72. |
Post-integration, we are committed to a long-term strategic net sales growth goal of 6 percent,
with acquisitions continuing to play a key role. We expect long-term strategic earnings per share
growth of 8 percent or greater. Our earnings per share will grow at a slightly higher rate than
net income with share repurchases. We remain committed to a long-term view of managing our brands
and remain confident in the opportunity for profitable growth that they offer.
At Smucker, we feel privileged to be invited to family tables every day. We value our relationship
with consumers and take seriously the confidence they place in us to provide the highest-quality,
best-tasting foods for their families. It is our ongoing quest to evolve the categories we
participate in by bringing consumers foods that are good and good for you, that are easier and more
convenient to use, and that bring a smile to their families. Folgers is a brand that has been
nurtured with the exceptionally high standards of Procter & Gamble. We look forward to continuing
Folgers rich history of being the leader in the coffee category.
Now Id like to turn the call over to A.G for comments from P&G.
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A.G. LAFLEY:
Thank you, Richard and good morning everyone.
When P&G announced its intention to separate the coffee business back on January 31, we told our
shareholders and employees that our goal was to maximize the after-tax value of the business and
minimize EPS dilution. The agreement we are announcing with Smucker accomplishes both those
objectives.
The coffee business will be separated from P&G and simultaneously merged with Smucker in a manner
that is tax free for P&G and its shareholders. We plan to finalize the transaction structure for
the separation in the early-Fall of 2008, and we will notify shareholders of those details at that
time.
This transaction creates value for P&G shareholders that would not have existed if we had continued
on the path of creating a stand-alone company. Smucker has identified significant cost synergies
that will be shared by the owners of both companies.
Folgers has been a great brand for P&G for 45 years, and the people working in the coffee business
are truly outstanding. As Tim said, the Jif and Crisco experience has proven that this type of
transaction is a recipe for success, and I fully expect the people and the brands to flourish as
part of Smucker.
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Now Id like to turn the call back to Tim for some closing remarks.
TIM SMUCKER:
Thank you, A.G. We look forward to getting to know the Folgers people as we work to build this new
organization.
As we prepare to merge the Folgers coffee business into Smucker during the fourth quarter of this
calendar year, we have asked Vince Byrd to serve as president of the coffee business. Vince has
been with Smucker for 31 years and is currently the senior vice president of our consumer business,
which includes general management responsibilities for our Smuckers, Jif, and Hungry Jack
businesses. He also has responsibility for our U.S. retail sales team, and is a member of our
board of directors.
Of course, between now and the closing of the transaction, Jamie Egasti will continue to manage the
Folgers business.
In summary:
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The addition of Folgers clearly aligns with our strategy and we are enthusiastic about
adding another number one brand into our strong and growing portfolio of brands; |
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Like Smucker, Folgers is a business rich in history and tradition and we look forward
to the integration of the iconic brand and talented employees into our Company; |
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The transaction is accretive to earnings with compelling financial benefits; |
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And finally, this transaction brings significant value to both P&G and Smucker
shareholders. |
As you know, this has and will continue to require a great deal of effort by many people throughout
both companies. We believe the many common values shared by our organizations represent a great
foundation for a smooth integration of the talented Folgers employees and market leading brands
into Smucker. We are confident in the future growth and opportunities for our Company and our
constituents consumers, customers, employees, suppliers, communities and shareholders.
Now Id like to turn the call over to Mark before we open to the Q&A.
MARK BELGYA:
As we prepare for the Q&A portion of the call, we ask that you limit your questions to the
transactions. If you have questions on other company-related topics, please directly contact
investor relations at either company after the call. Please keep in mind that Smucker is in its
quiet period as it relates to its 2008 year-end results. Smucker will be releasing earnings on
June 19.
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We thank you for your time and now will be happy to answer your questions.
OPERATOR:
Thank you, gentlemen. The question and answer session will begin at this time. If you are using a
speakerphone, please pick up the handset before pressing any numbers. Should you have a question,
please press *1 on your push button telephone. If you wish to withdraw your question, please press
*2. Please stand by for the first question. Our first question comes from of .
Please state your question Sir/Maam.
QUESTION AND ANSWER PERIOD
OPERATOR:
Gentlemen, I will now turn the conference call back to you to conclude.
TIM SMUCKER:
Again, thank you for your time and interest in participating in our conference call this morning.
Have a great day.
OPERATOR:
Ladies and Gentlemen, if you wish to access the rebroadcast after this live call you may do so by
dialing 800-289-0579 or 719-457-2550 with a pass code of 4697060 or by accessing either companys
website for a
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downloadable MP3 format. This concludes our conference call for today. Thank you all for
participating and have a nice day. All parties may now disconnect.
ADDITIONAL INFORMATION
The J. M. Smucker Company Forward-Looking Information
This communication contains certain forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially. These include statements
regarding estimates of future earnings and cash flows and expectations as to the closing of the
transaction. Other uncertainties include, but are not limited to, general economic conditions
within the U.S., strength of commodity markets from which raw materials are procured and the
related impact on costs, the ability to obtain regulatory and shareholders approval without
unexpected delays or conditions, integration of the merged businesses in a timely and cost
effective manner, retention of supplier and customer relationships and key employees, the ability
to achieve synergies and cost savings in the amounts and within the time frames currently
anticipated, and other factors affecting share prices and capital markets generally. Other risks
and uncertainties that may materially affect the Company are detailed from time to time in reports
filed by the Company with the Securities and Exchange Commission, including Forms 10-Q, 10-K and
8-K.
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The Procter & Gamble Company Forward Looking Information
All statements, other than statements of historical fact included in this communication, are
forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act
of 1995. Such statements are based on financial data, market assumptions and business plans
available only as of the time the statements are made, which may become out of date or incomplete.
We assume no obligation to update any forward-looking statement as a result of new information,
future events or other factors. Forward-looking statements are inherently uncertain, and investors
must recognize that events could differ significantly from our expectations. In addition to the
risks and uncertainties noted in this release, there are certain factors that could cause actual
results to differ materially from those anticipated by some of the statements made. These include:
(1) the ability to achieve business plans, including with respect to lower income consumers and
growing existing sales and volume profitably despite high levels of competitive activity,
especially with respect to the product categories and geographical markets (including developing
markets) in which the Company has chosen to focus; (2) the ability to successfully execute, manage
and integrate key acquisitions and mergers, including (i) the Domination and Profit Transfer
Agreement with Wella, and (ii) the Companys merger with The Gillette Company, and to achieve the
cost and growth synergies in accordance with the stated goals of these transactions; (3) the
ability to manage and maintain key customer relationships; (4) the ability to maintain key
manufacturing and supply sources (including sole supplier and plant manufacturing sources); (5) the
ability to successfully manage regulatory, tax and legal matters (including product liability,
patent, and intellectual property matters as
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well as those related to the integration of Gillette and its subsidiaries), and to resolve pending
matters within current estimates; (6) the ability to successfully implement, achieve and sustain
cost improvement plans in manufacturing and overhead areas, including the Companys outsourcing
projects; (7) the ability to successfully manage currency (including currency issues in volatile
countries), debt, interest rate and commodity cost exposures; (8) the ability to manage continued
global political and/or economic uncertainty and disruptions, especially in the Companys
significant geographical markets, as well as any political and/or economic uncertainty and
disruptions due to terrorist activities; (9) the ability to successfully manage competitive
factors, including prices, promotional incentives and trade terms for products; (10) the ability to
obtain patents and respond to technological advances attained by competitors and patents granted to
competitors; (11) the ability to successfully manage increases in the prices of raw materials used
to make the Companys products; (12) the ability to stay close to consumers in an era of increased
media fragmentation; (13) the ability to stay on the leading edge of innovation and maintain a
positive reputation on our brands; and (14) the ability to successfully separate the companys
coffee business. For additional information concerning factors that could cause actual results to
materially differ from those projected herein, please refer to our most recent 10-K, 10-Q and 8-K
reports.
Other Information
In connection with the proposed transaction between Smucker and P&G, Smucker will file a
registration statement on Form S-4 with the
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U. S. Securities and Exchange Commission (SEC). Such a registration statement will include a proxy
statement of Smucker that also constitutes a prospectus of Smucker, and will be sent to the
shareholders of Smucker. Shareholders are urged to read the proxy statement/prospectus and any
other relevant documents when they become available, because they will contain important
information about Smucker, Folgers and the proposed transaction. The proxy statement/prospectus
and other documents relating to the proposed transaction (when they are available) can be obtained
free of charge from the SECs website at www.sec.gov. The documents (when they are available) can
also be obtained free of charge from Smucker upon written request to The J. M. Smucker Company,
Shareholder Relations, Strawberry Lane, Orrville, Ohio 44667 or by calling (330) 684-3838, or from
P&G upon written request to The Procter and Gamble Company, Shareholder Services Department, P.O.
Box 5572, Cincinnati, Ohio 45201-5572, or by calling (800) 742-6253.
This communication is not a solicitation of a proxy from any security holder of Smucker. However,
P&G, Smucker and certain of their respective directors and executive officers may be deemed to be
participants in the solicitation of proxies from shareholders in connection with the proposed
transaction under the rules of the SEC. Information about the directors and executive officers of
The J. M. Smucker Company may be found in its 2007 Annual Report on Form 10-K filed with the SEC on
June 26, 2007, and its definitive proxy
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statement relating to its 2007 Annual Meeting of Shareholders filed with the SEC on July 9, 2007.
Information about the directors and executive officers of The Procter & Gamble Company may be found
in its 2007 Annual Report on Form 10-K filed with the SEC on August 28, 2007, and its definitive
proxy statement relating to its 2007 Annual Meeting of Shareholders filed with the SEC on August
28, 2007.
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