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 In an all-cash deal, privately held Mars will buy the Iams brand, as
well as Eukanuba and Natura, in the Americas and other selected
countries, which account for 80 percent of P&G Pet Care's global
sales.
P&G is seeking other buyers for those brands in European Union
markets, which were excluded from this deal.
Mars products range from candy like Mars bars and M&M's to food like
Uncle Ben's rice and chewing gum Extra and Orbit. Its pet care
brands already include Pedigree, Whiska, and Royal Canin, and this
deal will boost its market share as it vies with Nestle SA in the
pet food market.
Euromonitor International projects the global pet care industry will
hit $76.8 billion in sales in 2014.
P&G products include Tide detergent, Gillette razors and Pampers
diapers. The company has been under pressure to streamline its
business from investors including activist investor William A.
Ackman, who took a stake in P&G in 2012.
"Let's be honest. Pet food hasn't moved the needle for P&G," said
Matt McCormick, a portfolio manager at Cincinnati-based Bahl &
Gaynor Investment Counsel, which owns about 4.2 million P&G shares.
"I think P&G needs to shrink to grow," he said.
P&G has undertaken a multi-year restructuring program, cutting
thousands of jobs and taking steps to streamline operations, launch
new products and expand into fast-growing emerging markets. The exit
from pet food was "an important step" toward focusing on core
businesses, Chief Executive Officer A.G. Lafley said in a statement.
According to Euromonitor, P&G had just 4.7 percent of the global pet
care market in 2012, the last year for which data was available.
Mars had 23.4 percent of the global pet care market, putting it in a
virtual dead heat with Nestle SA, maker of Purina, with a market
share of 23.1 percent.
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Sanford Bernstein analyst Ali Dibadj praised P&G's exit from pet
food, which he called a "big distraction" that generates only about
2 percent of company sales, or an estimated $1.6 billion a year.
P&G does not break out results for its pet care business, which are
accounted for in its larger health-care segment. But P&G's
regulatory filings show the pet care volume decreased in the year
ended in June 2013 because of competition and product recalls for
Natura.
The companies expect the transaction to close in the second half of
2014.
P&G said it did not expect the deal to hurt its forecast for core
earnings growth per share for 2014 or have a material impact on 2015
results.
Mars, controlled by the Mars family, had annual sales of more than
$33 billion in 2013 and was ranked 5th in Forbes' list of America's
largest private companies.
Law firm Jones Day represented P&G in the deal, while Mars was
represented by Skadden Arps.
P&G shares were up 3 cents at $81.38 in afternoon trading on the New
York Stock Exchange.
(Reporting by Phil Wahba in New York, and Siddharth Cavale and
Shailaja Sharma in Bangalore; editing by Savio D'Souza)
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