GIS General Mills Inc

By Cara Lombardo 

General Mills Inc., best known for Cheerios breakfast cereal and Yoplait yogurt, is paying $8 billion to get back into pet food.

The Minneapolis-based food giant, which has only sold human food for many years, said Friday it plans to buy Blue Buffalo Pet Products Inc. as it looks for a piece of the fast-growing natural pet food market.

Under terms of the agreement, General Mills would pay $40 a share for Blue Buffalo, a 17.2% premium over its Thursday closing price of $34.12.

Shares in Blue Buffalo jumped 17% premarket Friday, while General Mills shares dropped 4%.

Blue Buffalo makes natural cat and dog food and treats under the "Blue" label, and in its last fiscal year had $1.3 billion in net sales.

The Blue Buffalo purchase marks the first major deal Jeff Harmening has struck since taking over as General Mills's chief executive in June. Mr. Harmening had gained acclaim in previous roles for spearheading the company's shift toward natural foods.

Mr. Harmening said in prepared remarks that consumers are looking for more natural products for their pets, as they are for themselves. Natural pet food is the fastest-growing piece of the $30 billion U.S. pet-food market, General Mills said, and accounts for about 10% of sales volume but about 20% of the revenue.

The deal also comes as General Mills's peers have already established pet divisions. Earlier this year, Mars Inc. said it would pay $7.7 billion to buy veterinary and dog day-care company VCA Inc. J.M. Smucker Co. paid more than $3 billion in 2015 to buy Milk-Bone owner Big Heart and Nestlé bought the maker of Purina pet food for more than $10 billion in 2001.

General Mills's offer for Blue Buffalo was "not unexpected," Susquehanna analyst Pablo Zuanic said in a research note, and it is possible other companies could make counteroffers.

With the addition of Blue Buffalo, General Mills would establish a new pet business segment. It expects to maintain Blue Buffalo's current Wilton, Conn., headquarters, and Blue Buffalo CEO Billy Bishop will keep his position.

General Mills produced pet food as far back as the 1930s, when it sold dog food through feed stores, and in the 1950s it marketed food for dogs, cats and birds.

General Mills expects the deal to close by the end of its fiscal year, which is May 27, subject to regulatory approval and other closing conditions.

The deal has been approved by the boards of General Mills and Blue Buffalo, and Invus LP and the Bishop family, which together own more than 50% of Blue Buffalo shares. It doesn't require additional sign-off from other Blue Buffalo shareholders, General Mills said.

Blue Buffalo, which has about 1,700 employees, went public in 2015.

Write to Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

February 23, 2018 08:52 ET (13:52 GMT)

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