P&G Announces Plan to Create Stand-Alone Coffee Company
CINCINNATI, January 31, 2008 – P&G announced plans to separate its coffee business and create an independent company named The Folgers Coffee Company. The coffee business had sales of approximately $1.6 billion and operating income of about $350 million in fiscal 2007. The new company will employ approximately 1,250 employees at four sites in the U.S., and will be headquartered in Cincinnati, Ohio.
P&G stated its goals in this transaction are to maximize the after-tax value of the coffee business for P&G shareholders and to minimize earnings per share dilution. In addition, P&G said this decision will enable the company to better focus its resources on faster growing categories and, as a result, enhance P&G's ability to consistently deliver its annual financial goals as the expected growth rate of the coffee business is below P&G's target range.
P&G believes the transaction will be good for the coffee business as the business will get greater priority and attention as a standalone company. Folgers is the leading retail coffee brand in North America, has attractive operating profit margins and is a strong cash generator.
In anticipation of the transaction, P&G has named Mr. Jamie Egasti to serve as Chief Executive Officer of The Folgers Coffee Company. Mr. Egasti currently serves P&G as President, Coffee and Global Snacks.
Although no decision has been made on the form of the separation, P&G expects to do a spin-off or split-off transaction. P&G's current preference is to do a split-off transaction which is expected to be tax-free for shareholders and result in lower annual earnings dilution than could be achieved with a spin-off. In a split-off, P&G shareholders would be given the option of exchanging their P&G shares for shares in the newly formed coffee company.
Assuming a split-off, the company expects the deal to be dilutive to EPS by 3 to 5 cents on an annual basis. Also, a split-off transaction would result in a significant one-time gain which would be partially offset by one-time transition costs and a one-time increase in restructuring spending associated with eliminating stranded overhead costs and offsetting EPS dilution.
P&G expects to determine the final deal structure during the April-June 2008 quarter and complete the transaction during the July-December 2008 period. P&G said the deal structure will be dependent on market conditions, and P&G will execute the transaction only if it achieves sufficient market valuation.
"We greatly appreciate the contributions of our Coffee employees. For over 45 years the Coffee business has been an important contributor to the success of Procter and Gamble," said Mr. Lafley. "This separation allows us to focus on our core businesses and The Folgers Coffee Company to further develop and leverage its brand portfolio in a coffee-specific business model."