On March 16, the United States Federal Trade Commission (FTC) permitted General Mills to complete the acquisition of Blue Buffalo pet food company. The FTC granted early termination of the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
With the receipt of this clearance, the condition of the announced merger transaction for all issued and outstanding shares of common stock of Blue Buffalo Pet Products, at a price of US$40.00 per share with respect to clearance under applicable antitrust and competition laws has been completely satisfied.
General Mills and Blue Buffalo Pet Products entered into a definitive agreement under which General Mills will acquire Blue Buffalo for approximately US$8 billion, or US$40 per share in cash.
Upon completion of the transaction, General Mills will operate Blue Buffalo as a new pet operating segment. General Mills expects to maintain Blue Buffalo's Wilton, Connecticut, USA headquarters and its Joplin, Missouri, USA and Richmond, Indiana, USA manufacturing and research and development facilities. Blue Buffalo's CEO, Billy Bishop, will continue to lead the business and report to Jeff Harmening, General Mills chairman and chief executive officer.
“Blue Buffalo saw one of the highest growth rates in recent years, due to its presence in the US market, and it has been bucking the natural trend," wrote Paul Flores, Euromonitor International’s head of pet care research, in a pet food industry analysis. "Speaking to pet parents and highlighting the freshness, naturalness and quality of its ingredients, the player currently ranks sixth at the global level."
Founded in 2002, Blue Buffalo makes natural pet foods and treats for dogs and cats under the BLUE brand, which includes BLUE Life Protection Formula, BLUE Wilderness, BLUE Basics, BLUE Freedom and BLUE Natural Veterinary Diet. In 2017, Blue Buffalo began selling in mass market retail. BLUE has US$1.275 billion in net sales and US$319 million in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for fiscal year 2017, representing an adjusted EBITDA margin of 25 percent. The all-cash purchase price of US$40 per share represents a 23 percent premium to Blue Buffalo's 60-day volume weighted average price.
Over the past three years, Blue Buffalo has delivered compound annual net sales growth of 12 percent and adjusted EBITDA growth of 18 percent.
According to a press release from General Mills, one reason for the acquisitions was that Blue Buffalo has built a loyal consumer base, particularly among millennials. General Mills believes Blue Buffalo is well positioned to capitalize on the pet humanization and the pet food premiumization trends, which are poised to continue for the foreseeable future. BLUE feeds approximately 3 percent of pets in the US, leaving potential for growth.
Another reason General Mills gave was that Blue Buffalo does well in e-commerce, where the company generated more than US$250 million of net revenues in 2017 growing over 75 percent versus prior year.
General Mills expects the acquisition of Blue Buffalo to create US$50 million in anticipated cost savings opportunities.
While cat trends continue, the pandemic has added to overall slow-growth treatment of the cat food market.
Premiumization and humanization, as well as automation, fueled continued operation growth in spite of the COVID-19 pandemic.