Filed by The J. M. Smucker Company
Commission File No. 333-73830
Subject Company: The Procter & Gamble Company
Pursuant to Rule 425 under the Securities Act of 1933
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.
CAGNY Presentation
February 20, 2002
INTRO
Smucker's Good morning. We appreciate the invitation to present to you.
logo slide This is the first time we have been to CAGNY, and we are looking
forward to introducing you to the "new" Smucker Company. Joining
me in making this presentation is my brother, Richard, who is
President and Co-CEO, and also with us today to help answer
questions are
- Steve Ellcessor, our Chief Financial Officer;
- Vince Byrd, who is Vice President--General Manager of
our Consumer Group;
- Fred Duncan, Vice President--Special Markets; and
- Mark Belgya, our Treasurer.
1st Before we begin the presentation, please let me direct
disclosure your attention to two slides that our attorneys consider
slide to be very important. First, some of the information that we will
be providing to you today is forward looking, and this slide
discusses some of the risk factors that are relevant to that
1
information. It is included in the copy of the presentation that
you picked up on your way in, so please take a minute to look at
that slide.
2nd Next, is a slide relating to the S-4 proxy statement and
disclosure prospectus that we have filed with the SEC in connection
slide with the transaction. More detail on the transaction is available
in that filing.
Jif/Crisco/ I am sure most, if not all of you, are aware of our proposed
Smucker's merger of the Jif and Crisco brands with our company.
beauty shot Since this transaction is quite unique, it might be helpful for
me to provide a brief description of the deal.
This transaction is being accomplished through the use of a
"Revised Morris Trust" structure, which allows us to accomplish
the deal with stock. It also provided a tax-free transaction to
both Procter & Gamble and its shareholders.
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.
2
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 in the second
calendar quarter.
"New" The integration planning is proceeding very well, and
Smucker we are looking forward to bringing the businesses together
slide into a "new" Smucker, combining three American icon brands, each
with the number one market position in their respective
categories.
The transaction also will double the size of our company and more
than double our cash flows and profits. It is very accretive to
earnings per share and, because of its unique structure, it will
provide us with a very strong balance sheet. This will create a
platform for future growth, not only for growing existing brands,
but giving us the opportunity to acquire additional leading
brands in the food business. It also will give us the ability to
continue our strong dividend pay out practices and, because we
will be doubling the number of our shares outstanding, it will
significantly improve the float and liquidity of our stock.
VISION
Powerful
combination Our vision is to create a company composed of a
slide number of American icon brands, each with the leading
3
market position in its respective category and each sold in the
center of the retail store. With regard to our vision, I would
like to emphasize the importance we place on number one, icon
food brands, and make clear that our goal is not to simply
accumulate an array of various retail brands. In a moment, we
will speak more to the importance of being the leading brand in
the category.
In many ways, Crisco and Jif are a natural fit with Smucker's.
They are everyday brand names found in the vast majority of
households across the country, and they have some of the highest
unaided brand awareness that can be found on the grocer's
shelves. These brands are sold through the same distribution
channel, which will allow us to leverage our position with our
brokers, and are sold not only to the same customers, but also to
similar consumers.
Video Let's take a moment and share with you how these brands are
viewed by consumers.
Product We think that the strong attachment that consumers have for
collage all three of these brands makes them more than just a natural
slide fit with each other. The connections between these brands and
their consumers creates an opportunity for the whole to be much
greater than the sum of its parts as we leverage the brand
awareness and equities of each brand to strengthen the others.
4
Not only do the brands each hold the number one market position
in its respective category, they also set the quality standards
for their categories, and are all sold in the center of the
retail store.
This point is very important. There has been much talk about the
growth of the perimeter of the store, where items such as home
meal replacements are sold, but grocers still make the majority
of their profits from the center of the store: shelf-stable
products, either dry or frozen, that provide the steady
day-in/day-out sales for the retail grocer.
STRATEGY
Category &
product Currently, in our retail business, Smucker participates
overview in four categories: fruit spreads, natural peanut butter,
slide ice cream toppings, and natural beverages.
Smucker's As you can see from this slide, we have a commanding
brand market share lead in each of these respective categories
slide over our next closest branded competitor, which is
represented by the second bar.
5
The combined total of these categories represents $1 billion
dollars in sales, and we currently have market leadership ranging
from 41% share to 71% share of each category.
The "new" With the addition of Jif and Crisco, we will add three
Smucker's new categories, as shown by this slide. You can see
brand that Jif has the leading market position with 33%, over
slide Skippy, the second branded competitor, at 22%. In
cooking oils, Crisco has a 24% share of market and its closest
competitor, Wesson, has a 19% share. In shortenings, Crisco has
an impressive share of 64%.
Opportunities As important is that these two categories total almost
for growth $2.0 billion in sales. Therefore, Smucker has gone from
slide the leading market position in four categories that total $1
billion dollars in sales, to the category leadership in seven
categories, totaling $3.0 billion in sales; thereby giving us
greater opportunity for growth.
Looking at our sales, by product category, both before and after
the transaction, we see the following:
Net sales by This chart shows that roughly half of our current business
product is in fruit spreads, across several business areas.
slide
The new Smucker Company, on the other hand, will be predominantly
a consumer retail, branded business, with a
6
good balance of product categories. Roughly a quarter of our
business will be in the peanut butter category; a quarter will be
in fruit spreads; and another quarter will be in shortenings and
oils. We think this provides us with a more balanced, profitable
basis for future growth.
In this age of consolidation, to be an effective supplier to the
retail trade and meet the needs of today's consumers, we believe
the most important factor is having brand leadership in the
categories in which you participate. In that regard, this next
slide indicates the percentage of a company's U.S. retail sales
that come from products that are the number one brand in their
category.
Branded Here, you can see that we compare very favorably with
retail sales these leading companies in the retail food industry.
slide
While it is true that the categories in which we participate are
mature, we are a very focused company and have demonstrated our
ability over the years to grow by gaining market share. It is the
type of business that we know a lot about and are very
comfortable with, and believe that there is strong growth
potential for each of our brands.
25-year This next slide looks at our ability to grow the share of
historical market for the Smucker's brand. We have been able to
7
chart slide grow our market share consistently over 25 years, taking our
share from 20% to its current level of 41%. We are confident in
our ability to continue doing this for the Smucker's brand, and
we believe this type of growth is certainly also possible for
both the Jif and Crisco brands which, while market leaders, are
still at a lower relative percentage leadership position than the
Smucker's brand.
As a result of our brand-building focus, we have achieved steady
earnings and consistent growth. With that, we'd like to share
with you our financial projections for the "new" Smucker Company.
Enhanced
shareholder FINANCIAL PERFORMANCE
value slide
Looking at our projected financial performance, let's
Financial touch first on our stand-alone performance and expectations.
performance We ended last fiscal year with revenues of $650 million,
slide EBITDA of $83 million, and earnings per share of $1.30. For the
current fiscal year, we expect sales and earnings to grow at
about 4% and EBITDA to grow by 11%. That would give us earnings
per share for this year in the range of $1.33 to $1.37, which
excludes any costs associated with the transaction. Our
expectation is that the one-time charges associated with the
transaction will be $10-15MM. Depending on exactly when the
closing occurs, the additional expense that we expect to incur
this fiscal year, as a result of the transaction, including both
one-time and ongoing costs, will be between $5MM and $10MM.
8
If you look at the right-hand side of the chart, you will see
what we think the combined businesses are likely to achieve 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 2003.
With the increased marketing investment spending that we have
built into these projections, we expect sales of approximately
$1.35 billion and a significant increase in our EBITDA, to a
range of $210--225 million. Our margins overall should improve as
we spread our sales and administrative costs over a much larger
sales base, allowing us to project a range of earnings per share
of between $1.90 and $2.10. This per-share range assumes
outstanding shares of just under 50 million.
Increasing shareholder value has always been a priority for
Smucker. Let's take a moment to highlight a couple of our most
recent initiatives. These not only contributed to shareholder
value, but they also helped to make the Jif / Crisco deal
possible .
Share price
performance In June 1997, we began an open market share
slide repurchase program, and over a course of the next three years
thereafter, we repurchased approximately 1 million shares.
9
Then, in August 2000, in order to simplify our capital structure
and improve liquidity, we combined our former Class A and Class B
common shares into one new single class of voting shares. At the
same time, we also repurchased an additional 4.3mm shares. You
can see the impact this had on our share price.
You can also see how the accretive nature of the Jif / Crisco
transaction has already contributed to increased shareholder
value, with a positive post-announcement street reaction.
Increased In addition, the doubling of our shares outstanding,
shareholder combined with the increase in share value, will take us
value slide from a small- to mid-cap stock. That, along with our greater
earnings growth potential and our strong dividend practice (which
we expect to continue), will result, we believe, in our shares
trading at a higher multiple than they have historically, further
increasing shareholder value.
Total value If you compare our total enterprise value as a multiple of our
EBITDA pro forma EBITDA to that of other food companies, as this
slide slide does, you can see the opportunity that exists for growth
in our valuation.
In order to help realize that opportunity, we are doing
presentations and road shows to try to bring wider recognition to
our investment
10
potential. Our presence with you today, of course, is part of
that effort.
GROWTH STRATEGY
Growth
strategy Looking forward, our expectations for the strategic time frame
slide are to achieve 8% annual revenue growth with earnings growth 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:
1. First, growth will result from our core businesses. We will
achieve this through increased marketing investment for the
Jif and Crisco brands, which have not had consistent
marketing support for the past several years, and continued
investment in the Smucker's brand. Our goal will be to focus
on share of market growth for each of these three brands.
2. Second is the introduction of new products, one of which we
Uncrustables have shared with you today: our Uncrustables PB&J sandwich.
slide We are 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 our product is currently being sold at retail.
There are also a number of new product ideas in the
"pipeline" for
11
both Jif and Crisco, and we plan to evaluate and give support to
those that we feel have significant potential.
2nd growth 3. The third leg of the growth "stool," as we mentioned
strategy earlier, is the acquisition of other leading food brands. With
slide regard to our acquisition criteria, based on our earlier comments
concerning the importance of brand strength, leading brand
position is a primary criterion. Other criteria include:
- a geographic emphasis on North America;
- ability to leverage raw material synergies and utilize
our existing plant capacity; and
- enabling acquisitions where we can leverage the
Smucker's, Jif, or Crisco brands, such as we have done
with the Uncrustables product.
Total debt As we mentioned earlier, the structure of this deal as a stock
EBITDA transaction has provided us with an extremely strong balance
sheet, with excellent cash flow--not only doubling the size of
our current business, but also providing a platform for future
growth. You can see on this slide how our company compares to
other food companies in terms of our total debt to EBITDA, on a
pro forma basis. Clearly, we have more than adequate capability
for making future significant acquisitions. We will be
disciplined, though, and target only those acquisitions that meet
our overall return requirements.
12
Summary SUMMARY
slide
We believe that what the new J.M. Smucker Company will offer to
investors can be summarized as follows:
The
Smucker 1. The proven ability to grow market share in mature categories;
advantage
slide
2. The ability to leverage the strength of our broker network to
maximize the retail focus;
3. Stronger category management programs with our retailers;
4. A focus on financial returns, supported by a strong balance
sheet. (This transaction enhances these capabilities); and
5. Continuity of management. Our company exemplifies this by having
only four top management changes in our 105-year history.
With these key elements, we firmly believe we can enhance the growth
potential of these new brands as they become part of The J.M. Smucker
Company.
13
Basic With this perspective on the transaction and its
Beliefs importance to our company, it is also important to step
slide back for just a moment and share with you our thoughts on some of the
things that will not change as a result of this transaction. Although
we are, in many ways, creating a new company, we will not be
compromising the "Basic Beliefs" upon which our company is 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 engrained in our culture and will continue to be the cornerstone
upon which we will build the Smucker Company.
"New" As you can see, we are very excited about the new Smucker Company. We
J.M. believe that we will provide increased value to our shareholders, both
Smucker existing and new, as we implement our vision of marketing American
Company icon brands with the number one market position in their respective
slide categories on the retail grocer's shelves.
Logo Again, thank you for giving us the opportunity to share our story with
slide you this morning, and we look forward to taking any questions you
might have.
14
THE J. M. SMUCKER COMPANY FORWARD LOOKING INFORMATION
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.
SECURITIES LAWS LEGEND:
THE J. M. SMUCKER COMPANY HAS FILED WITH THE COMMISSION A PROXY
STATEMENT-PROSPECTUS AND OTHER RELEVANT DOCUMENTS CONCERNING THE PROPOSED MERGER
OF THE JIF AND CRISCO BUSINESSES WITH AND INTO THE J. M. SMUCKER COMPANY.
INVESTORS ARE URGED TO READ THE PROXY STATEMENT-PROSPECTUS AND OTHER RELEVANT
DOCUMENTS FILED WITH THE COMMISSION BECAUSE THEY CONTAIN IMPORTANT INFORMATION
ON THE PROPOSED TRANSACTION. YOU 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, YOU MAY OBTAIN DOCUMENTS FILED WITH THE COMMISSION BY
THE J. M. SMUCKER 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 J. M. SMUCKER
COMPANY'S SHAREHOLDERS. A LIST OF THE NAMES OF THOSE DIRECTORS AND EXECUTIVE
OFFICERS AND DESCRIPTIONS OF THEIR INTERESTS IN THE J. M. SMUCKER COMPANY IS
CONTAINED IN THE J. M. SMUCKER COMPANY'S PROXY STATEMENT DATED JULY 10, 2001,
WHICH IS FILED WITH THE COMMISSION. SHAREHOLDERS MAY OBTAIN ADDITIONAL
INFORMATION ABOUT THE INTEREST OF THE DIRECTORS AND EXECUTIVE OFFICERS IN THIS
TRANSACTION BY READING THE PROXY STATEMENT-PROSPECTUS.
15