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Why General Mills Spent $8B On A Pet Food Company

Why General Mills Spent $8B On A Pet Food Company
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General Mills, Inc. (NYSE: GIS) announced Friday a major expansion into the pet food category.

What You Need To Know

General Mills and Blue Buffalo Pet Products Inc (NASDAQ: BUFF) reached an agreement in which General Mills will buy the producer and seller of pet foods for $8 billion, or $40 per share. The price tag on the deal implies a 23 percent premium to Blue Buffalo's 60-day volume weighted average price.

Why It's Important

When the transaction closes, General Mills will become the leader in the U.S. wholesome natural pet food category -- the fastest growing category in the pet food market, according to the company's press release. The deal also fits in with its portfolio reshaping category as it gains greater exposure to the $30 billion market that's generating a consistent 3 to 4 percent growth rate.

"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 General Mills Chairman and CEO Jeff Harmening.

What's Next?

The transaction has been approved by the boards of directors of each company and has been approved by a group of Blue Buffalo shareholders who own more than 50 percent of all outstanding shares. As such, the deal is not subject to any other approval process.

Blue Buffalo's stock was trading 16 percent higher at $39.85, while General Mills was trading down about 3.2 percent at $53.14.

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