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SSI Update

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Baby Boomer Update: J.M. Smucker (SJM) Up Over 5% Today on Acquisition News

Update #087  02/04/2015 3:32 PM EST

Baby Boomer Update: J.M. Smucker (SJM) Up Over 5% Today on Acquisition News

This morning the Wall Street Journal reported that SJM was going to acquire Big Heart Pet Brands. Big Heart has well known pet food brands like Milk Bone and Meow Mix. SJM will use stock, debt to acquire the company, and will also assume Big Heart’s $2.6 billion in debt. The total acquisition price will be about $3.2 billion.

Americans love their pets and are part of their families. U.S. sales of pet food and snacks was about $21 billion in 2013. Sales are expected to grow much faster than the packaged food business. Investors bid up the stock on the news.

We recommended SJM in December, and our adjusted cost basis is $100.46. The stock is currently up about 5.75% to $112.

We wrote an April $110 call on SJM, so if prices stay above $110, our stock will be called away. We should get one dividend, so our total return should be about 10% for a holding period of about 5 months.

We will not mind if the stock is called away, as it will make room for another recommendation in April.