(P3P) – Cheerios cereal maker Normal Mills Inc (GIS.N) will purchase Blue Buffalo Pet Merchandise Inc (BUFF.O) for almost $eight billion, foraying right into a fast-growing pet meals market to counter declining gross sales of processed meals.
The acquisition introduced Friday is the newest by a serious meals firm searching for to broaden within the $30 billion U.S. pet meals market, whereas battling low demand for sugary, preservative-filled gadgets.
“In pet meals, as in human meals, shoppers are searching for extra pure and premium merchandise,” Normal Mills Chief Govt Officer Jeff Harmening mentioned in an announcement.
Normal Mills — dwelling to Chex cereal and Yoplait yogurt — can pay $40 per Blue Buffalo share, representing a premium of 17.2 % to the pet meals firm’s Thursday closing value.
Blue Buffalo’s shares have been buying and selling near $40 on Friday morning, whereas Normal Mills’ inventory fell three.7 %.
Analysts mentioned the deal was too expensive. Blue Buffalo’s inventory had already climbed 58 % previously six months.
“We just like the strategic benefit however the value is steep and Normal Mills must work laborious to extract worth from the deal,” Jefferies analyst Akshay Jagdale mentioned.
He questioned if Normal Mills might correctly fold in Blue Buffalo after having difficulties in rising Yoplait, wherein it acquired a majority stake in 2011.
J.M.Smucker (SJM.N), Nestle, or a processed meals maker searching for a foothold within the pet meals business might make a counter provide for Blue Buffalo, mentioned Susquehanna analyst Pablo Zuanic.
Nevertheless, opposing bids have been unlikely given Normal Mills’ excessive provide value, different analysts mentioned.
The Blue Buffalo emblem. P3P/Handout
BETS ON PETS
Different corporations vying for a share of the profitable pet-care business embody Mars, Cargill and Nestle (NESN.S).
Mars, which makes Pedigree and Whiskas pet meals, purchased animal hospital agency VCA for $7.7 billion final 12 months, whereas agriculture firm Cargill snapped up pet meals maker Professional-Pet. Nestle has known as the business a strategic high-growth space for funding.
U.S. retail pet meals gross sales rose over 3 times as quick because the 1.2 % development in gross sales of packaged meals final 12 months, in accordance with analysis agency Euromonitor.
Blue Buffalo, based in 2002, rakes in additional than $1 billion in yearly gross sales, benefiting from robust demand for its BLUE model of canine and cat meals made with complete meats, vegetables and fruit.
The Wilton, Connecticut firm additionally led the U.S. pet care market in 2016 with a 6.1 % share, Euromonitor mentioned, up from zero simply two years in the past.
Normal Mills expects Blue Buffalo will assist enhance gross sales and add to its earnings inside two years.
It’ll fund the acquisition with debt, money available and about $1 billion in fairness.
Blue Buffalo will function as a separate unit inside Normal Mills and its CEO Billy Bishop will proceed to guide the enterprise.
Goldman Sachs was Normal Mills’ monetary adviser, whereas JPMorgan and Centerview Companions suggested Blue Buffalo.
Cleary Gottlieb Steen & Hamilton LLP offered authorized counsel to Normal Mills. Simpson Thacher & Bartlett LLP suggested Blue Buffalo.