updated 6/4/2008 9:21:46 AM ET 2008-06-04T13:21:46

Jams and jellies maker J.M. Smucker made a $2.95 billion bid for more of the breakfast table Wednesday, announcing all-stock deal for Folgers coffee.

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Smucker also will assume about $350 million of Folgers’ debt in a buyout from the current owner, Procter & Gamble Co.

Smucker will issue a special $5 dividend to Smucker shareholders at a to-be-determined record date, before the acquisition. P&G shareholders will receive about 53.5 percent of Smucker in a tax-free stock-for-stock acquisition after the dividend.

J.M. Smucker Co. expects the acquisition will boost profits by about 9 percent, excluding costs, if it owns the brand for the entire 2009 fiscal year. The company expects sales to increase to about $4.7 billion.

The deal with Cincinnati-based P&G is expected to close in the fourth quarter.

“Coffee is the perfect compliment to breakfast or dessert — two areas we know a lot about,” said Richard Smucker, president and co-chief executive of Smucker. “We are excited about the addition of Folgers and the many dimensions this transaction brings.”

P&G last year raised the possibility of divesting slower-growing brands, and in January said it might spin off Folgers and give shareholders the option of exchanging P&G stock for shares in the new coffee company.

“Strategically, P&G has exited certain categories in order to focus on our core businesses and enhance the growth profile of the portfolio,” said A.G. Lafley, chairman and CEO of Procter & Gamble.

“The structure and terms of this transaction deliver on the goals we stated for the separation of the coffee business from P&G. This transaction maximizes the after-tax value of the coffee business for P&G shareholders and minimizes earnings per share dilution.”

The consumer products company makes Pampers diapers, Gillette Fusion razors and Head & Shoulders shampoo.

While Folgers has been the nation’s No. 1 ground coffee brand and is among P&G’s “billion-dollar brands” in annual sales, it faces increased competition from Starbucks and other coffee sellers.

It is not the first deal between the two companies. Smucker in 2002 bought Jif peanut butter and Crisco shortening from P&G in an all-stock deal valued at nearly $1 billion.

The fast-growing Smucker last year bought Eagle Family Food Holdings Inc., a maker of sweetened condensed and evaporated milk.

Folgers, which dates to a 19th century California family business, has been expanded with gourmet and other specialty lines in recent years.

Smucker shares fell 74 cents to $53.01 in premarket trading. P&G rose 60 cents to $66.01.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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