General Mills moves into pet food with $8 billion Blue
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[February 24, 2018]
By Aishwarya Venugopal
(Reuters) - Cheerios cereal maker General
Mills Inc <GIS.N> will buy Blue Buffalo Pet Products Inc <BUFF.O> for
nearly $8 billion, foraying into a fast-growing pet food market to
counter declining sales of processed foods.
The acquisition announced Friday is the latest by a major food company
seeking to expand in the $30 billion U.S. pet food market, while
battling low demand for sugary, preservative-filled items.
"In pet food, as in human food, consumers are seeking more natural and
premium products," General Mills Chief Executive Officer Jeff Harmening
said in a statement.
General Mills — home to Chex cereal and Yoplait yogurt — will pay $40
per Blue Buffalo share, representing a premium of 17.2 percent to the
pet food company's Thursday closing price.
Blue Buffalo's shares were trading close to $40 on Friday morning, while
General Mills' stock fell 3.7 percent.
Analysts said the deal was too costly. Blue Buffalo's stock had already
climbed 58 percent in the past six months.
"We like the strategic merit but the price is steep and General Mills
will have to work hard to extract value from the deal," Jefferies
analyst Akshay Jagdale said.
He wondered if General Mills could properly fold in Blue Buffalo after
having difficulties in growing Yoplait, in which it acquired a majority
stake in 2011.
J.M.Smucker <SJM.N>, Nestle, or a processed food maker seeking a
foothold in the pet food industry could make a counter offer for Blue
Buffalo, said Susquehanna analyst Pablo Zuanic.
However, opposing bids were unlikely given General Mills' high offer
price, other analysts said.
BETS ON PETS
Other companies vying for a share of the lucrative pet-care industry
include Mars, Cargill and Nestle <NESN.S>.
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The Blue Buffalo logo. REUTERS/Handout
Mars, which makes Pedigree and Whiskas pet foods, bought animal hospital firm
VCA for $7.7 billion last year, while agriculture company Cargill snapped up pet
food maker Pro-Pet. Nestle has called the industry a strategic high-growth area
U.S. retail pet food sales rose over three times as fast as the 1.2 percent
growth in sales of packaged food last year, according to research firm
Blue Buffalo, founded in 2002, rakes in more than $1 billion in yearly sales,
benefiting from strong demand for its BLUE brand of dog and cat food made with
whole meats, fruits and vegetables.
The Wilton, Connecticut company also led the U.S. pet care market in 2016 with a
6.1 percent share, Euromonitor said, up from zero just two years ago.
General Mills expects Blue Buffalo will help boost sales and add to its earnings
within two years.
It will fund the acquisition with debt, cash on hand and about $1 billion in
Blue Buffalo will operate as a separate unit within General Mills and its CEO
Billy Bishop will continue to lead the business.
Goldman Sachs was General Mills' financial adviser, while JPMorgan and
Centerview Partners advised Blue Buffalo.
Cleary Gottlieb Steen & Hamilton LLP provided legal counsel to General Mills.
Simpson Thacher & Bartlett LLP advised Blue Buffalo.
(Reporting by Aishwarya Venugopal and Siddharth Cavale in Bengaluru and Martinne
Geller in London; Editing by Sai Sachin Ravikumar)
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