The J. M. Smucker Co. announced a definitive agreement to acquire a majority of the North American foodservice coffee and hot beverage business of Sara Lee Corp.
The acquisition includes Sara Lee's market-leading liquid coffee concentrate business sold under the licensed Douwe Egberts® brand, along with a variety of roast and ground coffee, cappuccino, tea, and cocoa products, sold through foodservice channels in North America. Liquid coffee concentrate adds a unique, high quality, and technology driven form of coffee to the company's existing foodservice product offering. In addition, the companies agreed to collaborate on liquid coffee technology by entering into a long-term foodservice innovation partnership. The acquisition is expected to add annual net sales of approximately $285 million to the company.
"This transaction further strengthens our position as a leading North American coffee company," said Richard Smucker, chief executive officer in a prepared statement. "The addition of liquid coffee concentrate to the Smucker portfolio aligns with our desire to compete in all forms of coffee, adding to our roast and ground, single serve, instant, and ready-to-drink platforms. The innovation partnership further allows us to collaborate on new technologies in the liquid coffee category for the foodservice market."
"This enabling acquisition adds significant scale to our foodservice business," added Steven Oakland, president, international, foodservice and natural foods. "The transaction nearly doubles the size of our foodservice business, provides new coffee technologies, and adds a foodservice coffee direct sales force to our team, ultimately allowing us to extend our reach and enhance our relevance within away-from-home channels."
The closing of the transaction will add approximately 450 employees to the company, including sales, marketing, finance, customer service, and administrative functions located in the U.S., Canada, and Mexico; a state-of-the-art liquid coffee manufacturing facility in Suffolk, Va.; a leased roast and ground coffee manufacturing facility in Harahan, Louisiana; and coffee equipment and service teams located throughout North America. In addition to licensing the Douwe Egberts® brand, the company will also license the Cafitesse® and Pickwick® brands.
Terms of the deal call for $350 million to be paid at time of closing, with an additional $50 million paid in declining installments over the next ten years. The company anticipates completing the all cash transaction near the beginning of calendar 2012.
Based on the anticipated closing date, the transaction is expected to contribute approximately $100 million to net sales in fiscal 2012, and is not expected to have a material impact on earnings per share, excluding one-time costs of the transaction. One-time costs are estimated to total approximately $25 million, nearly all of which are cash related. Approximately one-third of these one-time costs are expected to be incurred in fiscal 2012, with the remaining incurred through fiscal 2015.
On a full-year basis, the transaction is expected to generate earnings before interest, taxes, depreciation, and amortization of approximately $70 million to $75 million, excluding one-time costs of the transaction. The business is expected to contribute approximately $0.10 of earnings per diluted common share, also excluding one-time costs. Annual amortization expense is estimated to be approximately $15 million to $20 million.