Smucker Barks Up The Right Tree


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What's going on?

J. M. Smucker, the $13 billion maker of Smucker’s spreads, Jif peanut butter and Dunkin’ Donuts coffee, has agreed to buy Ainsworth Pet Nutrition in a delicious deal worth almost $2 billion. Ainsworth owns Nutrish, the brand backed by celebrity chef Rachael Ray (who taught us how to cut an onion the “Ray way”).

What does this mean?

Smucker is doubling down on pet food, which is already about 30% of its sales. The aim is for Nutrish, one of the fastest growing brands in premium dry dog food, to complement Smucker’s own Nature’s Recipe brand. In addition, buying Ainsworth comes with a tax benefit worth about $200 million. *wiggles tail*

Why should I care?

For markets: Investors might actually be impressed by Smucker – they’re just keeping it to themselves.

Typically an acquiring company sees its share price fall because it pays a premium for control of the other company and because there tend to be other uncertainties like whether the integration will be successful (for comparison, General Mills fell as much as 6% on announcing the acquisition of Blue Buffalo because investors were worried it overpaid). J. M. Smucker shares didn’t move much following the announcement. Investors may believe that their experience in pet food positions them well to extract their targeted $55 million of cost savings (a.k.a. synergies).

The bigger picture: It’s raining cats and dogs in the pets sector.

Most consumer staples (products like packaged food and drinks) categories aren’t growing particularly quickly at the moment, but pet products is one of the few that is. In recent months, several companies have gone to “play fetch” by doing acquisitions in the pet space such as Mars (owner of Pedigree and Whiskas) buying an animal hospital chain, and Cargill buying Pro-Pet in January.

Originally posted as part of the Finimize daily email.

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