General Mills, Inc. (GIS)

By now folks should realize that General Mills has gone way past the point of no return. There is no hope for this company. I have said it before and I will say it again; the management team that got General Mills into this mess is still largely in place. This team is both unwilling and unable to do what needs to be done to save the company and its brands. It doesn’t matter if an activist investor comes along or a buyer with a reasonable offer, management will do as they have always done and fight tooth and nail for the status quo that has fattened their wallets at the expense of the shareholder. So the only thing to do is to sell. Get out while you can. There are so many better run businesses with a future that will do better for you.

As GIS trades in the high $50’s a share and Kraft trades near $85 a share we are nearing a critical inflection point whereby Kraft could buy GIS. If Kraft goes $5 a share lower (below $80) and GIS edges up $5 a share higher (over $60) then the less than $20 a share in price difference would allow Kraft to offer GIS shareowners one Kraft share for every share of GIS. Depending on how the deal is structured, Warren Buffett and 3G would have to sink about an incremental $12 to $24 billion into Kraft to make existing Kraft shareholders whole. GIS shareholders get a nice tax free capital gain and a bigger dividend. How likely is this scenario? Well, Kraft’s share price is likely to decline given underwhelming earnings and lofty p/e ratio of over 27. GIS has a harder road for the share price to appreciate further by another +10%. GIS Q1 earnings will have to come in well above expectations, including a return to topline growth. Let’s hope that the current GIS management is not too ignorant and arrogant to accept a reasonable offer. But even if they do reject a reasonable offer, an activist investor and the mother of all of all class action lawsuits by shareholders against GIS management, to oust them once and for all, could do the trick. Look for a deal just after GIS announces Q2 earnings.

At this point, the only reason to buy GIS is in hopes that it gets taken out at a higher price, sometime in the near future. Let's face it. General Mills management is at best mediocre. They have for decades touted themselves as master marketers, knowing the inner workings of the consumers heart and mind. But as it turns out, that is just one big self aggrandizing lie. Management built the myth. Shareholders bought it, but it hasn't been true for over twenty years. Looking back, they kind of blew the Pillsbury acquisition of 2001. Then more recently they really blew the Yoplait acquisition. Organic growth is almost non-existent. Tinkering with cost cutting, ain't gonna cut it. Nothin less then the colossal management shake up that accompanies being acquired will save any of the General Mills brands. The chief concern for those stuck with GIS right now is that management is too self absorbed and arrogant to consider any reasonable offer and would rather go down with the ship, taking brand equity and shareholder value with them.