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February 28, 2018

General Mills, Inc. and Blue Buffalo Pet Products, Inc. today announced they have entered into a definitive agreement under which General Mills will acquire Blue Buffalo for $40 per share in cash, representing an enterprise value of approximately $8 billion. General Mills hopes to establish itself as the leader in the U.S. natural pet food category and accelerate its portfolio reshaping strategy.

Founded in 2002, Blue Buffalo says it is the fastest 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. BLUE has $1.275 billion in net sales and $319 million in Adjusted EBITDA for fiscal year 2017, representing an Adjusted EBITDA margin of 25 percent. Over the past three years, Blue Buffalo has delivered compound annual net sales growth of 12 percent and Adjusted EBITDA growth of 18 percent.

“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 and sales & marketing resources. We will in turn benefit from their experience building one of the strongest pull brands in the CPG world.”

“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,” said Billy Bishop, Blue Buffalo chief executive officer. “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.”

According to Blue Buffalo, it is the number one brand in the “wholesome natural” category. Still, it feeds 3 percent of pets in the U.S., meaning there is tons more room for it to grow, and the brand hopes General Mills can propel that growth. General Mills’ scale and decades of experience will support greater effectiveness and efficiency for Blue Buffalo across key business areas, including sales, marketing, advertising, supply chain, R&D, innovation and environmental stewardship. These capabilities are expected to contribute to meaningful revenue synergies over time, in addition to $50 million in anticipated cost savings opportunities.

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, Connecticut, headquarters and its Joplin, Missouri, and Richmond, Indiana, manufacturing and R&D facilities. Blue Buffalo’s CEO, Billy Bishop, will continue to lead the business and report to Jeff 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 (VWAP), and a 2017 Adjusted EBITDA multiple of approximately 22x, including synergies. General Mills expects to finance the transaction with a combination of debt, cash on hand and approximately $1 billion in equity.

Following the transaction, General Mills’ pro forma net debt-to-EBITDA ratio is expected to be approximately 4.2x. General Mills is committed to maintaining an investment grade rating and expects to deleverage to approximately 3.5x by the end of fiscal 2020. General Mills expects to maintain its $0.49/share quarterly dividend and suspend its current share repurchase program while it prioritizes achieving its leverage target.

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 (Invus) and founding Bishop family shareholders, representing more than 50 percent 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.

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