US food group JM Smucker has entered the pet food and snacks category with the $5.8bn (£3.8bn) acquisition of Big Heart Pet Brands.
Smucker’s, which makes a range of jams, jellies and spreads, said the cash and stock deal gives it a presence in the growing $21bn pet food industry.
Big Heart Pet Brands is based in San Francisco and is the largest stand-alone producer of branded pet food and snacks – such as Meow Mix and Kibbles ‘n Bits – in the US.
Smucker’s expected Big Heart, which is owned by a consortium of investors, to make a full-year net sales contribution of approximately $2.4bn in the 2016 financial year, with an estimated annual growth rate of 4-5%.
“Big Heart Pet Brands is an excellent strategic fit for our Company and the acquisition provides many compelling benefits in both the short- and long-term,” CEO Richard Smucker said. “This combination further advances our strategy of owning leading food brands in attractive centre-of-the-store categories.
“The pet food business will become a third platform for growth for our company, along with our existing food and beverage businesses.”
JM Smucker will issue 17.9 million shares of its common stock (worth $105.9 each) to the shareholders of Big Heart’s holding company and pay $1.3bn in cash. It will also assume $2.6bn of net debt, which will be refinanced when the deal completes.
Bernstein analyst Alexia Howard said the acquisition was “transformational” for Smucker’s with Big Heart representing about 30% of overall revenues.
She added, along with the Hershey’s takeover of the meat snack company Krave Jerky last week, the transaction a possible ongoing trend for 2015 with US food companies looking to enter non-core categories in search of faster growth.
Richard Smucker said: “The acquisition of Big Heart Pet Brands supports our purpose of ‘helping to bring families together to share memorable meals and moments’, as we recognize that pets are cherished members of the family.
“With approximately two-thirds of US households having at least one family pet, we will now be able to serve the mealtime and snacking needs of the whole family.
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