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Will Organic Food Lines Help General Mills, Inc.?

Will Organic Food Lines Help General Mills, Inc.?

Analysts expect Minneapolis-based General Mills, Inc. (NYSE: GIS) to report profit of $0.69 per share Wednesday before the bell. That would be down a penny from the same quarter a year ago.

Moreover, the company fell short of EPS estimates in the previous three quarters by 3 percent or more.

Among items hurting the company’s bottom line were weak sales of cereals and yogurt, two of General Mills’ most important product lines.

Related Link: Morgan Stanley Reiterates On General Mills, Inc. Following News Of Annies Inc Acquisition

Organic to the Rescue

General Mills on September 8 announced it had offered to pay $46 per share for packaged food company Annie's Inc. (NYSE: BNNY). The effort, expected to cost the company $820 million, was designed to help General Mills expand its lineup of natural and organic food products, one of the fastest growing segments in the food industry.

The attempt to buy Annie's follows General Mills’ acquisition of Small Planet Foods in 2000, as well as natural snack foods company Food Should Taste Good in 2012.

A Growing Organic Lineup

Small Planet produces the Cascadian Farm line of organic frozen fruits and vegetable and the Muir Glen lineup of organic canned tomato products.

Food Should Taste Good produces flavored tortilla and sweet potato chips.

All told, the company said, it competes in 14 categories in the natural and organic industry with net sales of approximately $330 million in fiscal 2014.

General Mills’ COO of U.S. retail, Jeff Harmening, said, “This (Annie’s) acquisition will significantly expand our presence in the U.S. branded organic and natural foods industry, where sales have been growing at a 12 percent compound rate over the last 10 years.”

Investor Lawsuit

According to Bloomberg BNA, in 2013, shareholders challenged 94 percent of all mergers and acquisitions valued at more than $100 million. On average, five shareholder derivative lawsuits were filed for every M&A transaction.

Related Link: 3 Grocers Working To Make Organic Food Affordable

No wonder then that an investor holding shares of Annie's had filed a lawsuit Monday to stop the General Mills takeover of the company.

The plaintiff said the offer was unfair and that the stock, which reached a high of $46.39 on news of the buyout and traded as high as $51.36 last October, was worth more than the price offered by General Mills.

U.S. Organic Food Market Outlook

Behind this and other "organic" acquisitions by General Mills are some interesting numbers, including the following forecast by Food Navigator:

"Solid growth for the U.S. organic food market is expected to continue until 2018, according to a new report that puts a compound annual growth rate (CAGR) of 14 percent on the sector."

At the time of this writing, Jim Probasco had no position in any mentioned securities.


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