JM Smucker offloads US baking business to private equity for US$375 million

10 Jul 2018 --- The JM Smucker Company has signed an agreement to divest its US baking business to private equity firm Brynwood Partners in a deal valued at US$375 million. The US manufacturer of fruit spreads, ice cream toppings, beverages, shortening, peanut butter and oils says the deal is part of an initiative to reshape the company portfolio and strengthen its focus on coffee, snacking and pet food.

Earlier this year, JM Smucker had already signaled its intention to sell off the US baking business when it acquired Ainsworth Pet Nutrition, LLC in a transaction valued at approximately US$1.7 billion, after an estimated tax benefit of $200 million.

The transaction primarily encompasses products sold in US retail channels under the Pillsbury, Martha White, Hungry Jack, White Lily, and Jim Dandy brands, along with all relevant trademarks and licensing agreements and the company's manufacturing facility in Toledo, Ohio.  

According to Smuker, this business generated net sales of around US$370 million for the year ending April 30, 2018, which were primarily reported in its US Retail Consumer Foods segment. 

As part of its acquisition of International Multifoods Corp in 2004, Smucker bought Pillsbury, the well-known baking mix brand marketed with the giggling “Doughboy” which has become an iconic image in the US. 

However, there is a growing consumer shift toward healthier options, fresh produce and less processed foods. This is proving to be a challenge US consumer-packaged food companies and is driving a growth slowdown for many well-known brands. 

“The divestiture reflects our strategy to focus our portfolio further and develop a stronger presence in pet food, coffee, and snacking – all large, growing categories with sustainable growth projections,” said Mark Smucker, President and CEO.

“Pillsbury, Martha White, and Hungry Jack remain iconic brands and, although they no longer align with our strategic priorities, we are confident they will be nurtured at Brynwood.”

“While the decision to divest these brands was difficult, it underscores our commitment to allocating resources toward those areas of the business critical to our growth.”

The company expects the divestiture to be dilutive to its adjusted earnings per share by US$0.25 to US$0.30 on a full-year basis, reflecting foregone profit related to the US baking business, before factoring in any potential benefit from the use of proceeds from the sale.  

However, it expects the net impact of the divestiture to be only slightly dilutive to its fiscal 2019 adjusted earnings per share, as foregone profit for the remainder of the fiscal year is expected to be mostly offset by an anticipated one-time gain on divestiture.  

This expectation also excludes any potential benefit from the use of proceeds from the sale. More details are expected when the company releases its fiscal 2019 first quarter results in August.

The transaction is expected to close in the second quarter of the 2019 fiscal year, subject to customary closing conditions, including regulatory approvals.