The sweet confectioner of M&Ms and Snickers candies closed a deal with Proctor & Gamble on Tuesday to buy out their pet food brands: Eukanuba, IAMS, and Natura.
Mars currently owns pet food businesses: Whiskas cat food, Pedigree Chum and Royal Canin. This deal marks the largest purchase that Mars has closed in five years, which was when it purchased Wrigley gum for $23 billion in 2008.
The deal to purchase the trio of pet food brands will be all cash, and a boost to its market share in markets that it dominates in Europe, North America, Australia and New Zealand.
The purchase includes buying rights to the three brands in North America, Latin America, and New Zealand, among other select countries. When put together, these specific regions account for 80 percent of Proctor & Gamble’s global pet food sales.
Proctor & Gamble plans to sell its European pet care business brands to different buyers, stating that it “is developing alternate plans to sell its Pet Care business in these markets.” Analysts predict likely purchasers include private equities and smaller independent players. Larger organizations such as Nestle would face competition issues.
“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 share owners,” A.G. Lafley, P&G’s chief executive, said in a statement. “The transaction creates value for P&G share owners and we are confident that the business will thrive at Mars, a leading company in pet care.”
Following suit with fellow consumer goods giants, Procter & Gamble seeks to streamline its overall business, announcing plans to reduce costs by $10 billion over the next five years. Pressures to reduce costs have also stemmed from activist investor Bill Ackman, who is pushing for accelerated cost-cutting measures to simplify and streamline overall operations.
"Let's be honest. Pet food hasn't moved the needle for P&G," said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel in Cincinnati, which owns about 4.2 million P&G shares. "I think P&G needs to shrink to grow," he said.