General Mills to Sell Green Giant to B&G Foods for $765M
General Mills, Inc. GIS recently announced definitive plans to sell the Green Giant frozen and canned vegetables business to B&G Foods, Inc. BGS in a cash transaction worth approximately $765 million.
The deal also includes the sale of Le Sueur vegetable businesses. The sale includes the Green Giant and Le Sueur businesses in the U.S., Canada and some other markets. General Mills will, however, continue to operate the European Green Giant business under license from B&G Foods. The transaction is expected to be closed before the end of this calendar year, subject to regulatory approvals.
Proceeds from the sale are expected to be used for share repurchase and debt repayment. The deal is expected to be dilutive to General Mills’ fiscal 2016 earnings per share by approximately 5 cents to 7 cents, excluding transaction costs and a one-time gain from the sale.
The Green Giant buyout will help B&G Foods enter the frozen food category which, according to the company, has tremendous growth opportunities. The Parsippany, NJ-based company expects the acquisition to be immediately accretive to its earnings and free cash flow. The company’s shares rose around 12% on Thursday.
Of late, General Mills’ profits were being affected negatively by Green Giant. Concurrent with the fourth-quarter fiscal 2015 results (reported on Jul 1), the company announced that it recorded a $260 million impairment charge in the quarter to write down the value of the Green Giant business.
The company further stated that it is pulling back resources from the underperforming business which was bearing the brunt of lower demand for processed and packaged food. Consumer preferences are shifting toward cheaper traditional fresh frozen vegetables than the vegetable blends and packages with sauces that Green Giant offers. However, CEO Ken Powell refrained from commenting on any plans to sell the business.
Instead, General Mills redirected the resources to turn around other businesses within the struggling U.S. retail segment. The company has increased investments to foster growth in cereals, accelerate the performance of better-for-you snacking — both yogurt and snacks businesses — and drive double-digit growth in the natural and organic portfolio. Basically, the company is targeting to align its portfolio on health and wellness products.
General Mills will also invest in consumer focused innovation and marketing and boost the natural and organic product portfolio to cater to the evolving consumer preferences for natural, healthy and organic food.
General Mills’ core cereals business has not been doing too well over the past few quarters due to weak category growth. Declining demand for cereals due to competitive pressures from alternatives like yogurt, eggs, bread and peanut butter are hurting category growth. Another cereal company, Kellogg Company K, is also facing similar issues.
Both General Mills and B&G Foods have a Zacks Rank #3 (Hold). A better-ranked food stock is Omega Protein Corporation OME sporting a Zacks Rank #1 (Strong Buy).
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GENL MILLS (GIS): Free Stock Analysis Report
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