General Mills today entered the pet food aisle by acquiring Blue Buffalo for $8 billion, in a $40 per share cash transaction.
The buy instantly establishes Minneapolis-based General Mills as the leader in the U.S. Wholesome Natural pet food category, the fastest-growing portion of the $30 billion domestic pet food market.
Founded in 2002, Blue Buffalo is the fastest-growing major pet food company making natural foods and treats for dogs and cats under its BLUE brand, including BLUE Wilderness, BLUE Life Protection Formula, BLUE Basics, BLUE Freedom and BLUE Natural Veterinary Diet. BLUE is the leading Wholesome Natural pet food brand in the U.S., with $1.275 billion in net sales, and $319 million in adjusted EBITDA for fiscal 2017.
“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,” said Jeff Harmening, chairman and CEO of General Mills.
Upon completion of the sale, expected to happen before the end of General Mills’ fiscal 2018, Blue Buffalo will account for 7% of General Mills’ sales. By comparison, cereal accounts for 16% of sales; snacks, 20%; convenient meals, 16%; yogurt, 14%; ice cream, 4%; and “other,” 23%.
Buffalo will operate under a new Pet operating segment, opening the door for further pet-related acquisitions in the future. The company’s four other business segments are: North American Retail, Convenience Stores & Foodservice, Europe & Australia and Asia & Latin America.
Blue Buffalo announced the news to its “Pet Parents” customers on its Facebook page.
“We are excited to let you know that Blue Buffalo will be joining the General Mills family of brands that includes such natural and organic favorites as Annie’s, Cascadian Farm, Larabar and Epic Foods,” the company wrote in a letter signed by its founding Bishop family members.
“This new partnership will allow Blue Buffalo to continue to provide the finest natural foods and treats for our furry family members as well as help us develop new and exciting product innovations,” the letter continued. “In addition, General Mills shares our single-minded focus on product quality and fully supports our ‘giving back’ initiatives in pet cancer research, and providing service dogs for military veterans.”
Blue Buffalo’s Wilton, Conn., headquarters will be maintained, as will its Joplin, Mo., and Richmond, Ind., manufacturing and R&D facilities. Billy Bishop, Blue Buffalo’s CEO, will continue to lead the business and report to Harmening.
“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,” Bishop said. “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.”
Originally a pet channel-exclusive brand, this year Blue Buffalo began selling its BLUE products in the supermarket channel. That move prompted many independent pet stores to stop selling the BLUE line.
According to the APPA (American Pet Products Association), the Stamford, Conn.-based trade association representing pet food and product manufacturers, natural pet foods have been growing with 22% of pet owners buying them in 2016, up from 13% in 2010.
General Mills officials said they plan to capitalize on capturing meaningful revenue synergies from the acquisition.
“We see the Wholesome Natural category and Blue Buffalo’s business shifting toward Food, Drug and Mass Channels, which plays to General Mills’ strengths,” Harmening said during an investor call this morning. “And while we aren’t planning to expand the BLUE brand internationally in the short term, our global footprint should prove invaluable if and when we choose to do so.
“We also see an opportunity to generate approximately $50 million in cost synergies by leveraging our scale to drive efficiency while still protecting and investing behind the parts of the business that enable growth,” Harmening continued. “As a result, we expect the transaction will be neutral to cash EPS (earnings per share) in fiscal 2019 and accretive to cash EPS in fiscal 2020.”
General Mills may look to further broaden its pet food holdings down the road.
“Blue Buffalo is a truly unique opportunity, and our immediate focus in on successfully brining Blue Buffalo into our portfolio and leveraging our capabilities to accelerate its growth,” Bridget Christenson, global communications manager, at General Mills told Supermarket News. “Going forward, we will continue to reshape our portfolio and evaluate opportunities for both acquisitions, as well as divestitures of brands.”
Blue Buffalo is not General Mills’ first foray into pet foods. In the 1930s, General Mills manufactured dog food through its former Feed Division that was sold through feed stores. Pet food became a key component of the company, and by the 1950s it was selling food and treats for dogs, cats and birds.
In 1959, General Mills acquired Boston-based American Crab Meat Co., manufacturer of the all-fish 3 Little Kittens brand of canned cat food. General Mills advertised a new 3 Little Kittens Balanced Meal food as “the only cat food containing 16 nourishing ingredients, including more proteins, vitamins and minerals than even milk itself!” In 1962, the brand was expanded to include meat, chicken and liver varieties.
The pet brands were eventually disposed of or discontinued.