Consumer Products

Why Pet Food Sale Is a Win-Win for P&G and Mars

Procter & Gamble Co.’s (NYSE: PG) sale of its most of pet food business to Mars for $2.9 billion should be a win for both companies.

Mars, better known for its candies such as M&M’s and Snickers, is also a leading pet food provider. It now gets to add the Iams, Eukanuba and Natura brands to its stable of Pedigree, Whiskas and others. That should boost the company’s position in major markets in North America and Latin America. P&G is developing alternate plans to sell its Pet Care business in Europe.

Todd Lachman, Global President of Mars Petcare, said:

This acquisition is a perfect fit with our Mars Petcare vision of making A BETTER WORLD FOR PETS(TM). The deal reinforces our leadership in pet nutrition and veterinary science, attracts world class talent and grows our world leading portfolio.

Procter & Gamble gets to divest itself of a business it acquired in 1999 that has stagnated at around $1.6 billion in annual revenues, not to mention being faced with rising commodity prices and increasing competition. With less than 5% of the market for pet food, P&G was in fourth place behind Mars, Nestle and Colgate-Palmolive Co. (NYSE: CL). P&G’s best seller, Iams, had only a 3.3% market share in 2012.

P&G Chairman and CEO A.G. Lafley said:

Exiting Pet Care is an important step in our strategy to focus P&G’s portfolio on the core businesses where we can create the most value for consumers and shareowners. The transaction creates value for P&G shareowners, and we are confident that the business will thrive at Mars, a leading company in pet care.

P&G said that it will begin reporting results of the global Pet Care business as discontinued operations as of the April-June 2014 quarter. It is not expected to have a material impact on fiscal year 2015 results. The company said it will use net cash proceeds from the transaction for general corporate purposes.

In addition, the company recently hiked its dividend and it is one of Warren Buffett’s top dividend stocks.

While some analysts may be happy about a leaner P&G, investors were not too excited Wednesday. While shares were up almost 1% in early trading to $82.24, they settled back down to $81.55 in the noon hour. The 52-week range is $73.61 to $85.82.

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