J M Smucker Co (SJM.N), the maker of Folgers coffee, said it would buy pet food maker Big Heart Pet Brands, known for brands such as Meow Mix and Milk-Bone, for $3.2 billion to enter the fast-growing pet food market.
Smucker said it would offer about 17.9 million shares to shareholders of Big Heart, formerly Del Monte Corp, and pay $1.3 billion in cash.
Shares of Smucker closed at $105.88 on the New York Stock Exchange on Tuesday.
The deal "puts Smucker in the growing pet food category and the valuation seems reasonable," said Farha Aslam, an analyst at brokerage Stephens Inc.
More U.S. households have pets than children, according to the American Pet Products Association. About 39 percent of the estimated $59 billion in pet-related expenditures was on food last year, according to its website.
"With approximately two-thirds of U.S. households having at least one family pet, we will now be able to serve the mealtime and snacking needs of the whole family," Chief Executive Richard Smucker said in a statement.
San Francisco-based Big Heart changed its name following the sale of its fruit, vegetable, and other consumer foods business in February last year. It is now owned by private equity firms Kohlberg Kravis Roberts & Co LP, Vestar Capital Partners, Centerview Capital and AlpInvest Partners Inc.
Smucker would assume about $2.6 billion of Big Heart's net debt, bringing the total deal value to about $5.8 billion. It also expects to incur about $225 million in one-time costs related to the transaction, expected to close by April.
Smucker anticipates the business to contribute about $2.4 billion to net sales in the year ending April 2016, with an estimated annual growth rate of 4-5 percent over the next several years.
William Blair & Co LLC and Wachtell, Lipton, Rosen & Katz advised Smucker on the deal.
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