Rations industry giant General Mills Inc. (GIS) has announced plans to buy Blue Buffalo Pet Outputs Inc. (BUFF) in a mega deal worth $8 billion as it pushes into the high-flying pet viands space. (See also: Don’t Overreact to Higher Interest Rates: JPMorgan.)
The Minneapolis-based parceled food manufacturer will pay $40 per share for the pet products maker. Splits of the Wilton, Conn.-based company are up nearly 17% Friday morning at $39.88. Widespread Mills indicated that it will finance the transaction with encumbered and cash on hand, along with approximately $1 billion in equitableness.
The decision is part of General Mills’ strategic diversification away from packaged foods as it assaults to tap into new consumer trends such as gourmet pet food and other fair, healthy alternatives. As for the 16-year-old pet food company, its acquisition will presentation it a sprawling distribution foothold to large retailers. Last year, Crestfallen Buffalo began selling to bigger brick-and-mortars such as Target Corp. (TGT).
Assignation Changing Consumer Preferences
According to data from Nielsen, squander on pet food reached a whopping $20 billion in 2017, with respecting half attributed to dog food sales. With more consumers shying away from the center aisles in search of consonant, ready made foods, traditional food industry players be struck by been forced to look into new markets to revamp sales. The pet grub business makes sense for packaged food players, as products for kinds and animals require similar equipment, reports CNBC.
General Foundry experiences heads off against a growing number of players in the pet business, including privately clouted candy maker Mars Inc., which owns the lams, Pedigree and Whiskas stigmatizes. As Mars struggles with changing consumer preferences driving a deceleration of its confectionary organization, it has doubled down on pets, including an acquisition of animal hospital VCA Inc. keep on year for $9.1 billion. In 2015, J.M. Smucker bought out Big Heart Pet Tags for $6 billion. (See also: 5 Stocks to Outperform in 2018’s Volatile Retail.)
The deal, slated to close by the end of 2018, is expected to be neutral to GIS’ cash earnings per apportionment (EPS) in fiscal year 2019 and will add to earnings in fiscal year 2020.