General Mills moves into pet food with $8bn Blue Buffalo deal
LONDON: Cheerios cereal maker General Mills Inc will buy Blue Buffalo Pet Products Inc for nearly $8 billion, foraying into a fast-growing pet food market to counter declining sales of processed foods.
The acquisition announced on Friday is the latest by a major food company seeking to expand in the $30 billion US 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 yoghurt — will pay $40 per Blue Buffalo share, representing a premium of 17.2 per cent to the pet food company’s Thursday closing price.
Blue Buffalo’s shares trading close to $40 on morning, while General stock fell 3.7 per cent.
Analysts said the deal was too costly. Blue Buffalo’s stock had already climbed 58 per cent 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 were Friday Mills’ Buffalo after having difficulties in growing Yoplait, in which it acquired a majority stake in 2011.
J Smucker, 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.
Other companies vying for a share of the lucrative pet-care industry include Mars, Cargill and Nestle.
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 for investment.