Skip to main content

Market Overview

General Mills Hit With Downgrade After Blue Buffalo Deal

General Mills Hit With Downgrade After Blue Buffalo Deal

General Mills, Inc. (NYSE: GIS) announced Friday that it was expanding into pet food with the $8-billion acquisition of Blue Buffalo Pet Products Inc (NASDAQ: BUFF).

Investors reacted to the news with a 3.6-percent sell-off and analysts were similarly unenthused.

The Rating

Societe Generale analyst Warren Ackerman downgraded General Mills from Hold to Sell and lowered the price target from $58 to $48.

The Thesis

Based on its recent acquisitions of both Annie’s organic brand and Blue Buffalo, General Mills is striving for relevance by both reformulating its portfolio and expanding to higher-growth categories, Ackerman said in a Monday note.

The latter strategy may prove costly.

“There is no doubt that Blue Buffalo has been a great story and we can see how Mills could add distribution muscle in the FDM [food, drug and mass] channel, but we struggle to see a decent payback,” he said. 

By Societe Generale's estimates, Blue Buffalo will add just 7 to 8 percent to General Mills group sales, with synergies of just 4 percent.

“It is a higher-growth and higher-margin business versus Mills, but will be EPS dilutive given [that] the company is raising $1 billion in equity to fund the deal,” Ackerman said. “The issue, in our view, is that it leaves little room for further M&A, involves execution risk and is very ROIC-dilutive.”

Price Action

General Mills shares were down 2.4 percent at $51.76 at the time of publication Monday.

Related Links:

Mmm, Mmm Mergers: M&A In The Food Sector

Tyson Foods CEO Talks Tax Reform, M&A Strategy

Latest Ratings for BUFF

Feb 2018Wells FargoMaintainsMarket PerformMarket Perform
Feb 2018Wells FargoDowngradesOutperformMarket Perform
Feb 2018Imperial CapitalDowngradesOutperformIn-Line

View More Analyst Ratings for BUFF
View the Latest Analyst Ratings


Related Articles (GIS + BUFF)

View Comments and Join the Discussion!

Posted-In: Arthur Reeves Societe Generale Sriram Gurijala Warren AckermanAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

Latest Ratings

NIUDaiwa CapitalInitiates Coverage On41.5
QMCONorthland Capital MarketsInitiates Coverage On12.0
IBKRJefferiesInitiates Coverage On89.0
MRETFTD SecuritiesDowngrades18.5
SWKSGoldman SachsDowngrades135.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Everything you need to know about the latest SPAC news.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at