1. Jon Moeller The Johnson School March 7th, 2011

2. Today’s Team Jon Moeller (B.S. 1986 / MBA 1988) Chief Financial Officer Chris Peterson (B.S. 1988) Finance Vice President, Household Care Andy Fitzpatrick (B.S. 1997/ MBA 2003) Finance Manager, Global Business Services

3. Jon Moeller RoleYear Food and Beverage Finance (Various Roles)1988-1994 Finance Director- China Laundry, Salted Snacks/ Personal Cleansing 1994-1998 Finance Director- Corporate Forecast and Analysis 1999 Finance VP Global Beauty Care2002-2006 Vice President and Treasurer2007 Chief Financial Officer2009

4. Company History Established 1837 Incorporated 1890 Headquarters in Cincinnati, Ohio, USA Market Cap - $180 Billion

5. Company Facts * Revenue$79 Billion Earnings$13 Billion Free cash flow$13 Billion Employees127,000 Dividends -121 consecutive years -54 consecutive years of increase * Fiscal year ended June 30, 2010

6. Global Sales North America Western Europe Asia Latin America Central & Eastern Europe, Middle East & Africa P&G sells products in over 180 countries with ground operations in over 80 countries.

7. Target = 90%+ Adjusted Free Cash Flow, $Bn 100% 101% 125% 99% 102% *Adjusted free cash flow is operating cash flow less capital spending and tax impacts from major divestitures. Adjusted free cash flow productivity is the ratio of adjusted free cash flow to net earnings excluding major divestiture gains. Cash Generation Adjusted Free Cash Flow Productivity* FY ’06 FY ’07 FY ’08 FY ’09FY ’10 $2 $4 $6 $8 $10 $12 $14

8. Global Business Units (GBUs) Owns P&L for Company 38 major product categories under 2 Mega-GBUs Beauty & Grooming & Household Care #1 or #2 market share position in the majority of categories where P&G competes Antiperspirants/Deodorants Baby Care Batteries Blades & Razors Cosmetics Fabric Care Family Care Feminine Care Fine Fragrance Home Care Oral Care Personal Cleansing Personal Health Care Pet Care Professional Hair Care Retail Hair Care Skin Care Snacks

9. Leadership Brands

11. Purpose-inspired Growth Strategy MORE CONSUMERS MORE PARTS OF THE WORLD MORE COMPLETEL Y Purpose-inspired Growth Strategy

12. How-to-Win Strategies INNOVATIONINTEGRATION SIMPLIFICATION How-to-Win Strategies TO IMPROVE CONSUMERS LIVES TO OPERATE AS ONE COMPANY TO DRIVE PRODUCTIVITY & LOWER COSTS

13. P&G Strategic Planning Process Annual Portfolio Review – Finance Led Process Each GBU is reviewed annually for: −1,3,5,10 year trends −Key measurement areas: revenue growth, profit growth, cash flow and shareholder value creation Each industry is reviewed for attractiveness −Market size, growth rates, competitive environment −Fit with P&G’s core capabilities −P&G’s right to win Decision is made to keep or exit business

14. Portfolio Management M&A – Past 10 Years >80 Divestitures Including: Zest Pharmaceuticals Folgers Tissue/Towel – Europe Juice Jif/Crisco Noxzema Pert Sure Right Guard >25 Acquisitions Including: AmbiPur Natura Gillette Wella Clairol Iams

15. P&G M&A Process P&G Business Unit Finance identifies M&A candidates P&G assigns a Deal Manager from Corporate A&D Team −Finance Associate Directors with P&G experience Deal Manager responsible for: Interface between Business Owner (own the Decision), External Advisors, and Corporate Staff Project Management, Managing 3 rd Party Advisors, Single Point of Contact for Target Company Secure Internal Resources and completion of proper due diligence (Tax, Corp Accounting) Co-Lead Negotiations with Legal P&G typically only uses Investment Bankers if issuing debt or equity

16. Folgers Coffee Company Case

17. Folgers History History: Founded in 1850 by James Folger in San Francisco Bought by P&G in 1963 Iconic Brand with some of the most famous TV Commercials in History −“Best Part of Waking Up is Folgers in Your Cup”

18. Folgers Commercial

19. Folgers Coffee Company Key Facts Approximately 1,200 Employees #1 US Retail Company by Sales and Volume $1.7 Billion in NOS/ $378 Million EBIDTA 40% Market Share on Volume basis #2 Gourmet Coffee Company #1 in Sales and Volume in every major retail channel

20. Question #1 Should P&G Keep or Sell Folgers? Why or Why Not?

21. Key Reasons to Exit Coffee Business 1.Projected Growth Rate below P&G long term growth rate for Revenue and Profit NA Business with high household penetration (limited ability to bring in new buyers) Limited synergies with existing P&G brands −Purchasing different materials than other P&G Brands −Limited ability to reapply R&D to/from other brands −Disproportionate Share in Food Channel compared to other Brands 2.Highly Exposed to Commodity Cost (Coffee Beans) adds risk to owning business Commodity Cost limits margin expansion opportunities 3.Opportunity Cost – Money tied up in Coffee business could be invested in higher return “Health and Beauty Care Business”

22. Question #2 How much is Folgers worth to P&G?

23. Value of Folgers to P&G Value - $2 to $2.5 Billion (DCF Analysis) DCF used as positive DCF creates value for shareholders −Allows Comparison of M&A vs internal opportunities (geographic expansion, Marketing Spend) Multiples used to benchmark likely sell/buy price but not judge of shareholder value creation Factors to Consider: Expected Growth Rate Stranded Overhead Discount Rate (P&G WACC) EPS Impact Cash Flow Impact

24. Question #3: P&G has decided to divest the business. What are the Pros/Cons for different types of Transactions? Potential Transactions: 1.Cash Sale 2.Split Off 3.Spin Off 4.Reverse Morris Trust (RMT)

25. What are Pros/Cons of Different Transactions? 1.Cash Sale Buyer buys business for Cash Pros −Easiest to execute as you do not need audited financial statements (for IRS/SEC) −Do not need to set up independent company but instead can sell “Assets” −Attract the most buyers (Strategic and Financial) Cons −Buyer needs to be able to pay higher than Keep Price plus Taxes ($1 Billion for Folgers) −More dilutive to P&G EPS than a split off or RMT transaction

26. What are Pros/Cons of Different Transactions? 2.Split Off P&G Shareholders can “opt in” to exchange P&G Stock for shares in new Company Pros −Reduces P&G shares outstanding −Tax Free Transaction −Investors choose to “opt in” aligning new company shareholders with Folgers Business Model −Less dilutive to P&G EPS than a cash sale or spin off Cons −Need to convince investors of value of Folgers Coffee Company. Need enough to “Opt In” so more than 80% of shares are distributed −IRS/SEC Regulations require a fully functioning company ‘Day One” −Need historical audited financial statements for past 3 years as if business was independent −Capital market transaction - requires financial markets to be receptive

27. What are Pros/Cons of different transactions? 3.Spin- Off All P&G shareholders get a pro-rata share of stock in Coffee Business Pros −Stock is distributed pro-rata to all stockholders so need to “convince” them to buy Folgers −Tax Free Transaction Cons −Reduces P&G stock price as portion of value transferred to new entity −IRS/SEC Regulations require a fully functioning company ‘Day One” −Shareholder relations - forcing P&G shareholders to take Folgers company stock −New Company has volatility post-IPO as many P&G shareholders would not want to own a stand alone small company and would sell stock. −Dependant on financial markets being receptive to deal

28. What are Pros/Cons of Different Transactions? 4.Reverse Morris Trust P&G splits off Coffee Company which immediately merges with another company Pros −Strategic Buyer can increase bid through “Synergies” −Tax Free Transaction −Reduced Market Risk than Spin/Split as you are exchanging for established value (Smucker’s Shares) −Less dilutive to P&G EPS than a cash sale or spin off Cons −Limited Companies that are right size (Folgers value needs to be greater than 50% of new company) limits P&G negotiating position −Regulatory Approvals (Anti-Trust) needed for Strategic Buyer −Capital market transaction - requires financial markets to be receptive

29. Question #4: Should Smucker’s Buy the Business? Why or Why Not?

30. What are the pros/cons for Smucker’s Shareholders? Pros Cross-sell and cost synergies with existing business Fit with Focus of US Business in Center of Grocery Purchase of Jif/Crisco from P&G in 2001 was a good fit for Smucker’s Gain access to solid Folgers Management team Cons P&G shareholders receive 53% of company & Smucker’s needs to take on debt Large Integration for size of Smucker’s Company Higher Visibility (part of S&P 500) & focus on family controlled company

31. Question #5: What is Folgers worth to Smucker’s?

32. Value of Folgers Coffee Company Considerations when acquiring a business 1.Long Term Growth Rates (Industry Attractiveness) 2.Value of Existing Business 3.Revenue Synergies 4.Cost Synergies 5.Impact on EPS 6.Capital Structure Smucker’s ultimately “Paid” $2.8 Billion for Folgers

33. What actually happened?

34. Coffee Business Separation In June 2007, P&G’s Board authorized Management to explore divesture of the Coffee Business as part of the Board’s Strategy Review In Fall 2007, P&G explored, with outside counsel and Investment Bankers, different potential divesture options for Folgers. On January 31 2008, P&G announced our intention to separate the Coffee business via a Spin-Off or Split-Off transaction, with a preference for a Split-Off to be executed in 2 nd Half of Year P&G named James Egasti as CEO and he began the preparation to run Folgers as a stand alone business

35. Smucker’s Bid J.M. Smucker Co. has long viewed Folgers as a potential Brand that would fit well with their Center of the Store Strategy After P&G filed the Form 10 (SEC Document used as pre-reading for this case) Smucker’s made a non-binding offer for the Coffee Business in April 2008 P&G negotiated with Smucker’s in April and May Preparation for the Split-Off continued in a parallel process due to the uncertainty of completing transaction Announced on June 4 th 2008 that P&G would sell the business to Smucker’s instead of splitting off into a stand-along business

36. Transaction Reverse Morris Trust 1.Tax Free Transaction 2.Folgers shareholders will own 53.5% of the Smucker’s company 3.Smucker’s shareholders will receive a one time $5/per share dividend 4.Smucker’s will assume $350MM of Folger’s Debt providing some cash to P&G

37. Employee Considerations Switch from Split-off to Reverse Morris Trust Definition of In-Scope Employees Terms of employee transfer

38. Investment Community Reaction Smucker’s sale was positively received by the investment community. P&G investors liked: The attractive economics/value created by the deal, and viewed the transaction as a “win-win” Confirmation that we remain on a path to divest under-performing/ non-strategic assets The split-off mechanism for share exchange, which provides each P&G shareholder choice on whether to participate Delivered approximately $500 Million in Shareholder Value by this transaction compared to the “Keep Price”

39. Deal Manager Role for Folgers Folgers not typical due to size of business & complex transaction (Reverse Morris Trust) Deal Manager Responsibility Split Off −Coordinated early efforts to develop potential deal strategies (Reverse Morris Trust) with consultants and Investment Banks −Led Multi-Functional team to design new org structure, policies for transferring to new company, and business strategy that would deliver financial projections −Managed Group of Experts (Tax, Accounting) to ensure compliance with SEC Filing Requirements −Assisted Treasurer in selection of Equity Manager (I-Bank) and Debt Placement Manager (I-Bank) −Participated in negotiations with selected CEO Reverse Morris Trust −Led Creation of Selling Documents and Management Presentation to Smuckers −Led Sub-Parts of Negotiations (Organization Transaction, Temporary Services Agreement) −Transition Leader to Smuckers