Filed by The J. M. Smucker Company
Commission File No. 001-05111
333-68416
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: The Procter & Gamble Company
Commission File No. 001-00434
This document is being filed pursuant to Rule 425 under the Securities Act of
1933 and is deemed filed pursuant to Rule 14a-12 under the Securities Exchange
Act of 1934.
SMUCKER ANALYSTS PRESENTATION
November 9, 2001
Good morning and welcome. We are pleased to have this opportunity to
share with you our outlook on The J. M. Smucker Company, or, to put it more
correctly, our outlook on the new Smucker Company. As I'm sure you know, we have
entered into an agreement to transform our company by adding the Jif and Crisco
brands to the family of Smucker's, thereby doubling the size of our company and
more than doubling our cash flow and profit.
As you see on the agenda before you, we will first cover the "new"
Smucker Company. Then we will review some of the details of the transaction;
overview the products and categories that we will be in once the transaction
closes; and discuss how this transaction will affect our future and enhance
shareholder value. For those of you not as familiar with our company, we will
also provide a little background on some of the things that we think make us
successful.
In many ways (which we speak to in a moment), these new brands are a
natural fit with Smucker. These are everyday names found in the vast majority of
households across the country, and have possibly some of the highest unaided
brand awareness that can be found on the grocer's shelves.
Picture if you will this "Norman Rockwell" scene: An American family
is gathered together around a table enjoying a meal where the chicken has been
fried in
1
Crisco vegetable oil...Smucker's preserves top their biscuits or bread....and,
for dessert, peanut butter pie--its filling made with Jif and its crust is made
with Crisco shortening.
As this picture suggests, these are three American icon food brands.
And each of them not only has strong ties with consumers; they are each #1 in
their respective categories as well.
This powerful combination is also a natural strategic fit: these
brands are sold through the same distribution channel and are sold not only to
similar customers, but also to similar consumers. They each also have a quality
reputation and are sold in the center of the aisle within the retail store. This
point is very important. There has been much talk about the growth of the
perimeter of the retail store, where fresh products are sold, but the grocer
still makes the majority of his profit from the center of the aisle within the
retail store. These are shelf-stable products, either dry or frozen, and provide
the steady day-in-day-out sales for the retail grocer.
The combination of these three brands truly will create a new
Smucker Company that is well positioned to grow and to further enhance
shareholder value.
Structuring this deal as a stock transaction has provided us an
extremely strong balance sheet, with excellent cash flow--not only doubling our
current size, but providing a platform for future growth.
This transaction is also highly accretive to earnings. It is
expected to increase our net income from our current level of approximately $33
million to a range of $95 to $105 million in the first full year of integration.
Earnings per share in that event would grow by 30% to 40%. The highly accretive
nature of the transaction is shown by the fact that while we will double our
number of shares outstanding, we will nearly triple our earnings.
2
Just as important, the way the deal is structured will provide us
with substantial cash flow and a relatively unleveraged balance sheet, thereby
giving us the financial strength following this transaction to look for
additional leading brands to help drive our future growth and increased
shareholder value.
Our retail products are currently sold through an extensive broker
network, and adding Jif and Crisco will enable us to triple the amount of sales
going through our retail brokers, thereby giving us more clout and critical mass
with them and allowing us to better serve our customers.
And, finally, it is important to note that we have many years of
experience in managing brands in mature categories. We've been able to grow the
Smucker's brand by one market share point per year for the last 20 years (from a
20% dollar share of the market to a 40% share today). We believe that with the
focus and experience that our people bring, we can increase the market share of
both Jif and Crisco beyond their current levels as well.
If you look at the three brands, you'll note that there are many
similarities between them:
- Jif has been the market leader in the peanut butter category for
20 years, with a 34% share in an $860 million category. Jif
products have distribution in 99% of available grocery outlets,
and Jif, of course, has extremely strong brand equity with
consumers.
- The same can also be said about Crisco, which is the market leader
in cooking oils and shortenings, with a 24% share in a $1.5
billion category, again with superior distribution of 99%, and
strong brand equity.
- All of these attributes are also shared by the Smucker's brand,
with the addition that Smucker's currently participates in
multiple distribution channels, including the foodservice (or
institutional) market. Currently, Jif and Crisco do not
participate in this channel in any significant way, offering an
additional opportunity for growth.
3
Let me now review some of the details of the transaction:
This transaction is being accomplished through the use of a
"Revised Morris Trust" structure, which allows us to
accomplish the deal with stock, thereby providing us (as
mentioned earlier) with a very strong balance sheet to support
future growth. It also provided a tax-free transaction to both
P&G and its shareholders, which helped to make our offer
attractive and give us a "leg up" in the bidding process.
The way the transaction will work is that Jif and Crisco will
be spun off from P&G into a new subsidiary that will be
immediately merged with Smucker. P&G shareholders will receive
one share of new Smucker stock for every 50 shares of P&G
stock that they own.
The Smucker shareholders will exchange each of their existing
shares for an expected .96 share of the new Smucker. The
transaction is subject to regulatory and Smucker shareholder
approval, and to receipt of a private letter ruling from the
IRS. We have already received antitrust approval from the FTC,
and we are confident of obtaining both shareholder approval
and the IRS ruling letter. We currently expect a closing date
sometime in the spring of 2002, assuming no unanticipated
delays.
If you now look at the major categories of the new Smucker Company,
you will note the following: Smucker's has a 40% share in the fruit spreads
category, with its closest branded competitor at 15% (the category size is $745
million); Jif peanut butter has a 34% share of that $860 million category, with
its closest branded competitor at 21% share; and Crisco's market share is 25% in
the $1.3 billion cooking oils category, with its closest branded competitor at
18%. In shortenings, although this is a much smaller category ($200 million),
Crisco has a truly impressive share of 73%.
4
It is also instructive to look at Smucker's category leadership with
its existing brands, in areas other than fruit spreads:
- we are the leaders in the ice cream toppings category with
share of almost 62% (in a $105 million category);
- in natural peanut butter, we have a 70% share of a $50
million niche category; and
- our R.W. Knudsen Family juices and juice beverages have a
53% share in the $100 million natural beverages category.
One of the key points here is that Smucker, prior to the
acquisition, has the brand leadership position in four distinct categories that
total approximately $1 billion in size. Once the transaction with P&G closes, we
will be the brand leader in seven categories that have a combined category size
of $3.4 billion, allowing us significant opportunities for further growth.
Let's look at our sales, by product category, before the
transaction. This chart shows that roughly half of our current business is in
fruit spreads.
The new Smucker Company will be predominately a consumer retail,
branded business with a good balance of product categories. Roughly a quarter of
our business will be in the peanut butter category; another quarter will be in
fruit spreads; and yet another quarter will be in shortenings and oils. The
remaining quarter will be made up of our other current businesses and less than
ten percent of the total business will be in nonbranded areas. We think this
gives us a much better balanced and more profitable basis for future growth.
Looking at our projected financial performance, let's touch first on
our stand-alone performance and expectations. We ended last fiscal year with
revenues of $650 million, EBITDA of $83 million, and earnings per share of
$1.30. For the current fiscal year, we expect sales and earnings to grow about 4
percent, depending on the ultimate impact of
5
September 11 on our foodservice business. That would give us earnings per share
for this year in the range of $1.33 to $1.37.
If you look at the right hand side of the chart, you will see what
we think the combined businesses are likely to do in the first 12 months of
integration. For these purposes, we are assuming a closing on May 1, 2002, so
that the first 12 months of integration match our fiscal year '03. Even with
increased investment spending, we project that the addition of these brands will
allow us to hit $1.35 billion in sales and increase our EBITDA significantly to
approximately $210 to $225 million. Our margins overall should also increase as
we spread our sales and administrative costs over a much larger base--allowing
us to project a range of earnings per share for the period of $1.90 to $2.10.
This per share range assumes outstanding shares of just under 50 million.
The accretive nature of the transaction has already contributed to
increased shareholder value with the positive post-announcement street reaction.
In addition, the doubling of our shares outstanding, combined with the increase
in share value, will take us from a small-cap to a mid-cap stock. That, along
with our greater earnings potential and our strong dividend practices, creates
what we believe is a favorable opportunity for our shares to trade at a higher
multiple than they now do, providing further shareholder value.
Looking forward, our expectations are to achieve high single digit
revenue growth for our business as a whole, with earnings growing at a similar
or greater rate. We will focus our efforts in three major areas that we believe
are critical to growth and maximizing value:
First, we must create revenue growth based on and following
from the transaction. We believe we can do this in three ways:
(1) increased focus on share growth for Jif and Crisco, as
well as continuing growth for the Smucker's brand, through
steady, effective marketing support.
6
(2) Introduction of new products--one of which we have shared
with you today--our Uncrustables PB&J sandwich. We are
very excited about this product and have had strong
initial success in school systems (where our foodservice
area has been marketing the product) and in the 10% of the
country where it's currently being sold at retail. There
are good new product ideas in the pipeline for both Jif
and Crisco, and we plan to give support to those efforts
as well.
(3) The third "leg" of the growth stool (as we've mentioned
earlier) is acquisitions of other leading brands, and we
have already discussed how our relatively unleveraged
balance sheet will allow us to be aggressive in this area.
We will also, however, be disciplined and target only
those acquisitions that will meet our return requirements.
Our second major focus, especially in the next year, will be
making sure that we have a seamless integration as we bring
these new brands onboard. There certainly will be challenges
to integrating such a large transaction, but both our teams
and P&G's are already well into the process and we are
confident in our ability to integrate the businesses smoothly.
After all, while we are adding over $600 million in sales, we
are adding only two plants and fewer than 100 SKU's. Compared
to the 16 plants and several thousand SKU's that we manage in
our current businesses, the Jif and Crisco businesses are
relatively straightforward.
Our third focus is to make sure that we capture the synergies
available from the transaction. These include leveraging our
sales and administrative infrastructures to make sure that we
lower those costs as a percent of sales and leveraging our
broker network to take advantage of the greater critical mass
to better serve our customers and perhaps lower costs. We will
also
7
seek opportunities to leverage our purchasing synergies and,
as the transition process moves forward, we will look for
other areas in which we can achieve efficiencies and lower
costs.
And, finally, we will leverage our expertise in brand
management.
With those thoughts on the transaction and its importance to our
company, it is also important to step back for just a moment and share with you
our thoughts on some things that will NOT change as a result of the transaction.
Although we are, in many ways, creating a new company, we will NOT be
sacrificing or compromising the Basic Beliefs upon which our company was built.
These beliefs have stood the test of time, and we believe that they will be just
as important, if not more so, in providing the foundation for the Company as it
grows.
These Beliefs of "Quality," "People," "Ethics," "Growth," and
"Independence" are ingrained in our culture. I do want to emphasize also that
the last belief of "Independence" is very important to us. We strongly believe
that the long term interests of our shareholders, employees, communities, and
other constituencies are best served by the Smucker Company remaining
independent. While the structure of this transaction does reduce the overall
control position of the Smucker family and other insiders, our time-phase voting
structure will remain in place for mergers and other major transactions that
might impact control. We feel very confident that the headquarters of the
Company will remain in Orrville for a long time to come.
As (hopefully) you can see, we are very excited about the new
Smucker Company. We believe that we will provide increased value to our
shareholders, both existing and new, through what we call our "SMUCKER
ADVANTAGE." This can be summarized as follows:
We have stable top management and team leadership with
extensive experience in our industry.
8
We are on only our fourth generation of CEOs in 105 years (we
think there is real strength in that continuity).
We have always been a company with financial strength and
strong capabilities. (We did not want to sacrifice that
through this transaction. We believe we've actually enhanced
it significantly).
We have long experience and strong capabilities in marketing
and distribution, and we believe we can leverage those skills.
We have a proven ability to grow market share (and we now have
three significant, new categories in which to do that).
We have a history of maximizing the potential of leading
brands--even in "mature" categories.
And, we've been able to develop strategic partnering
relationships with our key customers, both large and small,
and will continue to do so.
Finally, we are committed to our employees and the Basic Beliefs
upon which our company was built.
So, to summarize:
- the new Smucker Company combines three American icon food
brands in a very accretive transaction;
- it will have very strong cash flow and an extremely solid
balance sheet; and
- the new brands added help to provide a promising platform
for future growth.
9
We are grateful for your attendance here today and look forward to taking any
questions you may have.
THIS DOCUMENT 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, ABILITY TO OBTAIN REGULATORY AND SHAREHOLDERS'
APPROVAL, INCLUDING WITHOUT LIMITATION A PRIVATE LETTER RULING FROM THE INTERNAL
REVENUE SERVICE, INTEGRATION OF THE ACQUIRED BUSINESSES IN A TIMELY AND COST
EFFECTIVE MANNER, 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 AND 10-K.
THE COMPANY WILL FILE A PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS
CONCERNING THE PROPOSED MERGER OF THE JIF AND CRISCO BUSINESSES WITH AND INTO
THE COMPANY WITH THE COMMISSION. INVESTORS ARE URGED TO READ THE PROXY
STATEMENT/PROSPECTUS WHEN IT BECOMES AVAILABLE AND OTHER RELEVANT DOCUMENTS
FILED WITH THE COMMISSION BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ON THE
PROPOSED MERGER. INVESTORS WILL BE ABLE TO OBTAIN THE DOCUMENTS FILED WITH THE
COMMISSION FREE OF CHARGE AT THE WEBSITE MAINTAINED BY THE COMMISSION AT
www.sec.gov. IN ADDITION, INVESTORS MAY OBTAIN DOCUMENTS FILED WITH THE
COMMISSION BY THE COMPANY FREE OF CHARGE BY REQUESTING THEM IN WRITING FROM THE
J. M. SMUCKER COMPANY, STRAWBERRY LANE, ORRVILLE, OHIO 44667, ATTENTION:
INVESTOR RELATIONS, OR BY TELEPHONE AT 330-682-3000.
THE J. M. SMUCKER COMPANY AND ITS DIRECTORS AND EXECUTIVE OFFICERS MAY BE DEEMED
TO BE PARTICIPANTS IN THE SOLICITATION OF PROXIES FROM THE COMPANY'S
10
SHAREHOLDERS. A LIST OF THE NAMES OF THOSE DIRECTORS AND EXECUTIVE OFFICERS AND
DESCRIPTIONS OF THEIR INTERESTS IN THE COMPANY IS CONTAINED IN THE COMPANY'S
PROXY STATEMENT DATED JULY 10, 2001, WHICH IS FILED WITH THE COMMISSION. THE
COMPANY'S SHAREHOLDERS MAY OBTAIN ADDITIONAL INFORMATION ABOUT THE INTEREST OF
THE DIRECTORS AND EXECUTIVE OFFICERS IN THE PROPOSED MERGER BY READING THE PROXY
STATEMENT/PROSPECTUS WHEN IT BECOMES AVAILABLE. INVESTORS SHOULD READ THE PROXY
STATEMENT/PROSPECTUS CAREFULLY WHEN IT BECOMES AVAILABLE BEFORE MAKING ANY
VOTING OR INVESTMENT DECISION.
11