Cheerios cereal maker General Mills Inc (GIS.N) will buy Blue Buffalo Pet Products Inc (BUFF.O) for nearly $8 billion, seeking to tap burgeoning demand for natural pet food and offset falling sales for processed items.
The acquisition announced Friday is the latest by a major food company seeking to expand in faster growing areas such as pet- and organic-food amid falling demand for established brands.
General Mills will pay $40 per Blue Buffalo share, representing a premium of 17.2 percent to the pet food company’s Thursday closing price. Blue Buffalo shares were trading higher at $40.15 before the bell.
Nestle (NESN.S), Mars and Cargill have all made bets on the pet care industries. Mars, the world’s biggest pet food maker, bought animal healthcare provider VCA for $7.7 billion last year.
While U.S. retail pet food sales rose 3.7 percent last year, overall packaged food sales climbed 1.2 percent, according to research firm Euromonitor.
Blue Buffalo, founded in 2002, rakes in more than $1 billion in yearly sales, benefiting from strong demand for its BLUE brand of dog and cat food made with whole meats, fruits and vegetables.
Minneapolis-based General Mills, home to Yoplait yogurt, Nature Valley snack bars and Chex cereal, has seen a dent in sales over the past two years as consumers ditch processed food and favor items viewed as healthier.
The company expects Blue Buffalo will help boost sales and profit margins and add to General Mills’ earnings within two years.
“In pet food, as in human food, consumers are seeking more natural and premium products and we have tremendous respect for how attentive Blue Buffalo has been to the needs of their consumers,” General Mills Chief Executive Officer Jeff Harmening said in a statement.
General Mills said the deal would make it the leader in the U.S. wholesome natural pet food industry, the fastest growing category in the pet food market.
Goldman Sachs was General Mills’ financial adviser, while JPMorgan and Centerview Partners advised Blue Buffalo.
Cleary Gottlieb Steen & Hamilton LLP provided legal counsel to General Mills. Simpson Thacher & Bartlett LLP advised Blue Buffalo.