What's going on?
General Mills, the $30 billion maker of Cheerios, Häagen-Dazs and Betty Crocker, announced on Friday it will buy pet food manufacturer Blue Buffalo for almost $8 billion – that’s a lot of dog treats!
What does this mean?
As consumers’ increasing focus on health and wellness means they’re seeking out foods without artificial ingredients, General Mills has been buying up organic snack brands such as Annie’s and Epic.
The trend extends to pet food too: Blue Buffalo’s dog and cat food is free from artificial colors and contains fruits and vegetables. This acquisition offers access to a large and growing pet products market, helping offset the weak growth that General Mills has seen in areas like cereal and yogurt in recent times.
Why should I care?
For the stock: Who’s a good boy? Blue Buffalo shareholders are!
General Mills’ offer of $40 per share was 17% above Blue Buffalo’s closing share price on Thursday evening. This sent the stock up on Friday, generating a nice return for Blue Buffalo investors. General Mills stock fell by 4% however, as some of its investors thought the deal was too expensive.
The bigger picture: Pets could cure what ails consumer staples companies.
Last week, we wrote about some of the challenges faced by consumer staples companies (consumer staples being stuff like packaged food and drinks, and household items like detergent). One way out of the mire is to acquire fast-growing companies, and pets are high on a number of corporate shopping lists. Food giant Mars, which already owns Whiskas and Pedigree pet food brands, bought an animal hospital chain last year; Cargill, an agricultural company, bought Pro-Pet in January, while Nestle has increased investment in its pets business. With high pet ownership among millennials driving increased spending on pet products, the tail on this trend seems likely to continue wagging for some time.