The J. M. Smucker Company to Merge P&G's Folgers Business into the Company in an All-Stock Transaction

05/06/08 The J. M. Smucker Company and The Procter & Gamble Company announced the signing of a definitive agreement to merge the Folgers coffee business into The J. M. Smucker Company in an all-stock reverse Morris Trust transaction valued at approximately $3.3 billion, including the assumption of an estimated $350 million of Folgers debt. As part of the transaction, Smucker will issue a one-time special dividend of $5 per share to Smucker shareholders as of the record date, prior to the merger, a clear indication of the strength of the combined businesses. Following this one-time special dividend, P&G shareholders will receive approximately 53.5 percent of Smucker in a tax-free stock-for-stock merger.

Folgers is the leading producer of retail packaged coffee products in the United States with a 150 year history. Folgers' broad portfolio of products are sold primarily under its flagship Folgers brand. This brand joins a widely recognized portfolio of brands that include Smucker's, Jif, Crisco, Pillsbury, Eagle Brand, Hungry Jack, Robin Hood and Bick's. The proposed transaction creates a powerful portfolio of brands and an even stronger Smucker Company with annual sales approaching $5 billion, and greater scale that will benefit all of its businesses. With the addition of Folgers, the total size of the categories in which Smucker participates increases to approximately $15 billion as compared to $1 billion in 2002. The addition of Folgers, a billion dollar brand, is consistent with Smucker's strategy to own and market number one food brands in North America.

The merger provides investors with a compelling financial story and further strengthens Smucker's ability to deliver enhanced shareholder value over time. Smucker believes that the addition of the Folgers business will benefit Smucker and its shareholders in several important ways, as detailed below:

-- Assuming Folgers was owned for all of Smucker's fiscal year 2009:

-- Net sales are expected to increase to approximately $4.7 billion.
-- It is estimated that the transaction would be accretive by approximately 9 percent to fiscal year 2009 earnings per share, excluding merger and integration costs, and after giving effect to the impact of the special dividend to Smucker shareholders, as discussed in Transaction Details below.
-- Smucker expects to realize synergies in excess of $80 million.
-- The profit contribution from Folgers and fully realized synergies of over $80 million are expected to result in estimated earnings before interest, taxes, depreciation, and amortization ("EBITDA") of $820 million.  This represents an increase in the EBITDA margin of nearly 300 basis points.

-- Results for fiscal year 2009 will depend on the actual closing date.
Assuming the transaction closes early in the fourth quarter of calendar 2008:

-- Fiscal 2009 net sales are estimated to approximate $4 billion.
-- Fiscal 2009 earnings per share, before one-time costs associated with the transaction, are estimated to range from $3.45 to $3.50.
-- Fiscal 2010 earnings per share, before one-time costs associated with the transaction, are estimated to range from $3.62 to $3.72.

-- Longer term, sales for Smucker are expected to increase 6 percent per year with acquisitions continuing to play a strategic role.  The ability to leverage the sales growth results in an expected earnings per share growth rate of 8 percent or greater.

-- Smucker will continue to maintain a strong balance sheet with a conservative leverage profile and substantial incremental free cash flow, after capital expenditures ("FCF").  Smucker is expected to generate pro forma FCF of approximately $400 million, which is 12 percent accretive on a per share basis.  The enhanced cash flow will allow Smucker to continue its historic strong dividend practice, typically in the range of 40 percent of earnings, to pursue accretive market-leading brand acquisitions, and to fund future share repurchases.

"Folgers is a perfect strategic fit within our portfolio of leading and iconic North American food brands," said Tim Smucker, Chairman and Co-Chief Executive Officer of Smucker. "Folgers will become our tenth number one brand in North America and will further enhance the high quality, great tasting, diverse product offerings that consumers expect from Smucker. We are proud to welcome the talented Folgers employees to the Smucker Company where brands and people are about more than making and marketing products. We believe the many common values shared by our organizations represent a great foundation for a smooth integration."

"Coffee is the perfect complement to breakfast or dessert -- two areas we know a lot about," said Richard Smucker, President and Co-Chief Executive Officer of Smucker. "Like Smucker's, Jif, Crisco, and Pillsbury, the Folgers brand has exceptional equity with consumers. The addition of Folgers will also enhance our ability to reach out to consumers at retail through complementary, multi-brand merchandising activities. We are excited about the addition of Folgers and the many dimensions this transaction brings in our quest to meet and exceed consumer expectations."

"Since adding Jif and Crisco in 2002, we have continued to expand our portfolio by completing ten brand acquisitions," added Tim Smucker. "We have developed a core competency of integrating our acquisitions in a timely fashion and growing the brands. As an example, Jif has experienced an annualized sales growth of 7 percent, increased its share of market by 7 share points, and introduced a variety of new products."

"Strategically, P&G has exited certain categories in order to focus on our core businesses and enhance the growth profile of the portfolio," said A.G. Lafley, Chairman of the Board and Chief Executive Officer of Procter & Gamble. "The structure and terms of this transaction deliver on the goals we stated for the separation of the coffee business from P&G. This transaction maximizes the after-tax value of the coffee business for P&G shareholders and minimizes earnings per share dilution."

"Smucker has proven to be an excellent steward of Jif and Crisco since taking ownership of the brands from P&G in 2002 and I am confident that Folgers will continue to thrive as part of The J. M. Smucker Company," added Lafley. "Smucker's core beliefs, values, and principles are very much the same as those of P&G. We cannot think of a better long-term home for P&G's former coffee employees and brands than Smucker."

Under the terms of the agreement, which has been approved by the boards of directors of both companies, P&G will distribute Folgers to P&G shareholders in a tax-free transaction, with a simultaneous merger with Smucker. P&G expects the Folgers separation to occur via a split-off and plans to finalize the transaction structure in the early fall of 2008. In the merger, current P&G shareholders will receive approximately 53.5 percent of Smucker shares and current Smucker shareholders will own approximately 46.5 percent of the combined company upon closing. Upon closing, Smucker will have approximately 118 million shares outstanding. As part of the transaction, Smucker will be assuming an estimated $350 million of Folgers debt. The transaction is expected to be tax-free to both companies and P&G shareholders. In addition, Smucker shareholders as of the record date, prior to the merger, will receive a special dividend of $5 per share. The record date for the special dividend will be determined by Smucker at a future date.

The transaction is expected to close in the fourth quarter of calendar 2008, subject to customary closing conditions including regulatory and Smucker shareholder approvals. Smucker expects to incur approximately $100 million in one-time costs related to the transaction over the next 12 to 24 months.

Following completion of the transaction, the expanded Smucker Company will add over 1,250 employees including sales, marketing, coffee procurement, product development, supply chain and administrative functions in Cincinnati and manufacturing plants in New Orleans, Louisiana; Kansas City, Missouri; and Sherman, Texas, along with a key distribution center in New Orleans.

Smucker was advised by Banc of America Securities LLC; William Blair & Company, L.L.C.; Calfee, Halter & Griswold LLP; and Weil, Gotshal & Manges LLP. P&G was advised by Morgan Stanley & Co. Inc., The Blackstone Group L.P., Jones Day and Cadwalader, Wickersham & Taft LLP.