Shareholder HighMark Capital Management Inc. said P&G, which is under pressure to revive itself, could improve sales and boost its share price by selling assets including the Iams petfood division. P&G shares are being discounted because the company is too diversified and too large, and selling assets like the pet-care business may be a "prudent move," Todd Lowenstein, a fund manager at HighMark Capital, said.
According to Exane BNP Paribas, Del Monte, a private-equity-owned company, is seeking to expand its pet products business after agreeing in October to sell its canned peaches and corn division for US$1.68 billion.
Selling the Iams division could result in as much as US$2.5 billion for P&G, said Sanford C. Bernstein & Co., while buying Iams would position Del Monte, with a 20 percent market share, ahead of Mars Inc. as the second largest to Nestle in the petfood and treats industry in North America. In August, P&G reported that its market share fell below 10 percent.
If P&G sold Iams, "the market would reward management with a higher multiple, a higher valuation because they are getting focused," said Lowenstein, whose firm oversees about US$19 billion including P&G shares. Iams is "non-core to their future strategic initiatives. They could probably exact a pretty decent price from someone who has a lot of synergy value in combining those businesses."
Erin Lash, an analyst with Morningstar, said P&G rivals like Nestle and Unilever are considering or already selling off parts of their holdings.
"Everybody's doing this: selling off non-core businesses to reinvest in areas with the highest growth, highest profit potential," Lash said.
Ali Dibadj, a New York, USA-based analyst at Bernstein, said the Iams division could be worth about US$2.5 billion in a sale, while Ferry of Exane BNP Paribas estimated it could be valued closer to US$3 billion.
Paul Fox, a spokesman for P&G, said the company "will continue to focus our portfolio, allocating resources to businesses where we can create value and continuing to exit those where we cannot." He said the company does not comment on speculation when asked whether it would be open to selling the pet-care unit.
Chrissy Trampedach, a spokeswoman for Del Monte Foods, said the company does not comment on specific merger and acquisition plans.