Mars to Buy P&G Pet Food Brands for $2.9 Billion in Cash

Mars Inc., the closely held maker of M&M’s candies and Uncle Ben’s rice, agreed to buy three Procter & Gamble Co. (PG) pet-food brands for $2.9 billion, cementing its lead in the industry.

The transaction, which excludes the brands’ businesses in some markets, mainly in Europe, will be completed in the second half of the year, the companies said today in a statement.

The acquisition gives Mars the Iams, Eukanuba and Natura lines to add to its Pedigree, Whiskas and Royal Canin brands. McLean, Virginia-based Mars was the largest global pet-food seller in 2012, with 23.4 percent of the market, compared with 23.1 percent for Purina owner Nestle SA (NESN), according to researcher Euromonitor International.

“It gives them size in a potentially attractive market,” Ali Dibadj, an analyst at Sanford C. Bernstein & Co. in New York, said in an interview. “They just have to decide to invest back in the business.”

P&G said it will restate its results to reduce fiscal 2013 earnings per share by 3 cents and cut 2014 earnings by 4 cents. The sale won’t affect P&G’s forecast for profit growth in its fiscal 2014, which runs through June, and won’t have a material effect on fiscal 2015 results. Cash from the sale will be used for general corporate purposes, the company said.

Photographer: Chris Ratcliffe/Bloomberg

Mars Inc., based in McLean, Virginia, is the closely held maker of M&Ms candies and Uncle Ben’s rice. Close

Mars Inc., based in McLean, Virginia, is the closely held maker of M&Ms candies and Uncle Ben’s rice.

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Photographer: Chris Ratcliffe/Bloomberg

Mars Inc., based in McLean, Virginia, is the closely held maker of M&Ms candies and Uncle Ben’s rice.

P&G, based in Cincinnati, rose 0.2 percent to $81.49 at the close in New York. The shares are little changed this year.

Lafley Return

A.G. Lafley, who returned as P&G’s chief executive officer last year, has been working to cut costs and evaluate the company’s units for potential divestitures. Analysts and investors considered Iams, which P&G bought in 1999, a natural candidate. The business hasn’t been a good one for P&G, said Dibadj, who recommends buying P&G shares.

“I wish they’d never bought this thing,” he said today. “They’re unraveling some of their mistakes, and this potentially was one.”

While Mars didn’t want the brands’ European business, it has an option to buy operations in remaining markets in Asia and Africa, said Paul Fox, a P&G spokesman.

“We will actively pursue the sale of our pet-care business in Europe,” Fox said. He declined to say whether the company has received interest in the units or whether it already is in talks with potential suitors.

Forecast Cut

A sale may help P&G as the stronger dollar weighs on international revenue at the same time that it’s working to regain market share in key categories. The company in January lowered its forecast for profit and sales growth this year because of currency exchange-rate fluctuations and policy changes in Venezuela. That move followed second-quarter earnings that topped analysts’ estimates.

Lafley’s second tenure came with high expectations. In his first round as CEO, he oversaw the $57 billion acquisition of Gillette Co., expanded P&G’s overseas presence and presided over the introduction of successful new products, such as the Swiffer cleaner.

“It’s good to see that he’s being active,” Jack Russo, an analyst at Edward Jones & Co. in St. Louis, said of the pet-food sale. “This company is so big, sometimes the best way to grow it is to shrink it first.”

To contact the reporter on this story: Lauren Coleman-Lochner in New York at llochner@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net Kevin Orland, John Lear

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