General Mills Inc. and Blue Buffalo Pet Products Inc. announced Feb. 23 that they have entered into a definitive agreement under which General Mills will acquire Blue Buffalo for $40.00 per share in cash, representing an enterprise value of approximately $8.0 billion.
The transaction establishes General Mills as the leader in the U.S. wholesome natural pet food category, the fastest-growing portion of the overall pet food market, and accelerates its portfolio reshaping strategy, the announcement said.
Founded in 2002, Blue Buffalo is a fast-growing major pet food company making natural foods and treats for dogs and cats under the BLUE brand, which includes BLUE Life Protection Formula, BLUE Wilderness, BLUE Basics, BLUE Freedom and BLUE Natural Veterinary Diet. According to the announcement, BLUE is the number-one wholesome natural pet food brand in the U.S., with $1.275 billion in net sales and $319 million in adjusted earnings for fiscal year 2017, representing an adjusted earnings margin of 25%.
"The addition of BLUE to our family of well-loved brands provides General Mills with the leading position in the large and growing Wholesome Natural pet food category and represents a significant milestone as we reshape our portfolio to drive additional growth and value creation for our shareholders," General Mills chairman and chief executive officer Jeff Harmening said.
"We are competing more effectively in our existing categories by really listening to consumers and providing a variety of options that meet their needs," Harmening continued. "In pet food, as in human food, consumers are seeking more natural and premium products, and we have tremendous respect for how attentive Blue Buffalo has been to the needs of their consumers, pet parents and pets as they have built their brand.
"As we have done with Annie's, Lärabar and EPIC, we expect to help Blue Buffalo by leveraging our extensive supply chain, R&D (research and development) and sales and marketing resources. We will, in turn, benefit from their experience building one of the strongest pull brands in the (consumer packaged goods) world," he added.
"I have been impressed by General Mills' strong track record of accelerating growth for its natural and organic brands while giving them the freedom to maintain their own unique culture and identity. General Mills will be a tremendous home for our BLUE brand as our talented team of over 1,700 'Buffs' joins this new extended family," Blue Buffalo CEO Billy Bishop said. "From the first meeting Jeff and I had, I felt a strong cultural fit between our two companies and believe they will be a great partner in our mission to reach more pet parents and feed more pets. This transaction creates significant, immediate value for our shareholders, as it recognizes the strength of our competitively advantaged business model. Along with our leadership team, we look forward to working with General Mills to continue growing the BLUE brand for many years to come."
General Mills is the third-largest natural and organic food producer in the U.S., with leading brands that include Annie's, Lärabar, Liberté, Cascadian Farm, Muir Glen and EPIC. Upon completion of the transaction, General Mills will operate Blue Buffalo as a new Pet operating segment alongside its four current operating segments: North American Retail, Convenience Stores & Foodservice, Europe & Australia and Asia & Latin America. General Mills expects to maintain Blue Buffalo's Wilton, Conn., headquarters and its Joplin, Mo., and Richmond, Ind., manufacturing and R&D facilities. Bishop will continue to lead the business and report to Harmening.
The all-cash purchase price of $40.00 per share represents a 23% premium to Blue Buffalo's 60-day volume weighted average price and a 2017 adjusted earnings multiple of approximately 22x. General Mills expects to finance the transaction with a combination of debt, cash on hand and approximately $1.0 billion in equity.
The transaction, which has been approved by the boards of directors of General Mills and Blue Buffalo, is subject to regulatory approvals and other customary closing conditions and is expected to close by the end of General Mills' fiscal 2018. Invus LP and founding Bishop family shareholders -- representing more than 50% of Blue Buffalo's outstanding shares -- have approved the transaction, and no other approval of Blue Buffalo's board of directors or shareholders is required to complete the transaction.
General Mills is a leading global food company that serves the world by making food people love. Its brands include Cheerios, Annie's, Yoplait, Nature Valley, Fiber One, Häagen-Dazs, Betty Crocker, Pillsbury, Old El Paso, Wanchai Ferry, Yoki and more. Headquartered in Minneapolis, Minn., General Mills generated fiscal 2017 consolidated net sales of $15.6 billion as well as another $1.0 billion from its proportionate share of joint venture net sales.