P&G Sheds Pet-Care Business to Mars in $2.9 Billion Deal

Pact Covers Iams, Eukanuba and Natura Brands

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Soldier gets welcome home in Iams ad from Saatchi & Saatchi.
Soldier gets welcome home in Iams ad from Saatchi & Saatchi.

Procter & Gamble Co. has agreed to sell its pet-care business in the U.S. and other major markets to Mars for $2.9 billion in cash. It's a move long expected for a unit that some saw as a poor fit with a household and personal-care company that years ago sold its human-food brands.

The deal, pending regulatory approval, covers the Iams, Eukanuba and Natura brands in major markets mostly outside Europe, where P&G will retain the business, at least for now. Mars also has an option to buy the European businesses.

"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," said P&G Chairman-CEO A.G. Lafley in a statement.

Mars, which also sells such brands as Pedigree, Royal Canin, Cesar and Nutro and owns the Banfield chain of veterinary clinics, vies with Nestle's Purina unit for leadership in global pet care. Todd Lachman, president of the Mars Petcare unit set to receive the P&G brands, is himself a 10-year P&G veteran. P&G, along with fellow personal-care power Colgate-Palmolive Co., owner of the Hill's Science Diet business, is among distant also-rans for global leadership.

P&G acquired the privately held Iams business in 1999 for $2.3 billion during the short-lived tenure of Durk Jager as CEO, before his departure the following year. P&G quickly grew Iams by expanding the namesake brand from pet specialty channels to mass outlets the following year on Mr. Jager's watch.

But analysts and other people close to the company never saw Mr. Lafley, who succeeded Mr. Jager in 2000 before returning as CEO last year after a three-plus-year-break, as being as big a fan of the pet business. In one conference call with analysts during Mr. Lafley's first CEO tour of duty with P&G, he observed that Iams' global potential was limited by the fact that in some key developing markets people eat dogs or cats rather than feeding them super-premium pet food.

The P&G pet-food business in general and Iams in particular never appeared to fully recover momentum following a massive industry pet-food recall in 2007. At the time, the super-premium brand, along with many lesser-priced competitors, had to withdraw product produced by a contract manufacturer who had used gluten laced with toxic melamine from a Chinese supplier. Dozens of dogs and cats were reported to have died as a result of eating the products. P&G has had several less serious pet-food recalls since.

A recession that started later that year may not have helped, but the super-premium side of the pet-products industry subsequently has fared far better than the rest of the business since the recession, according to industry executives.

P&G's numbers have been better of late, actually, at least in its bigger dog-food category, with market share up 0.2 points to 8.8% of the $537 million dog-food category for the 52 weeks ended March 15, according to Nielsen data from Deutsche Bank. P&G's share fell 0.3 points to 5.1% of the $325 million cat food category for the period in data that excludes pet specialty and some club and dollar stores.

P&G spent $108 million on U.S. measured media for pet-care brands last year, according to Kantar Media, with more than $90 million going to Iams and $15 million to Eukanuba. Publicis Groupe's Saatchi & Saatchi handles advertising for Iams and Eukanuba, while the Brighton Agency, St. Louis, handles the Natura brands P&G acquired in 2010 (under former Chairman-CEO Bob McDonald), which also include Evo, Innova and California Natural. Starcom Mediavest Group handles planning and buying except for Eukanuba, whose planning is handled by Carat. Citizen Paine handles PR for Iams and Eukanuba, while Dieste handles Hispanic advertising for Iams.

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