General Mills (NYSE: GIS) is moving into the pet food business with a deal to buy Blue Buffalo Pet Products (NASDAQ: BUFF) for roughly $8 billion in cash.
General Mills' offer price of $40 per Blue Buffalo share represents a premium of 17.2% to Blue Buffalo's Thursday closing price.
General Mills said it expects to finance the transaction with debt and cash on hand, along with approximately $1 billion in equity. The company expects the deal to close by the end of 2018.
The deal, which marks Minneapolis-based General Mills' entry into the pet food business, will also help the company offset intensifying competition in the packaged food industry.
General Mills said the deal would make it the leader in the U.S. wholesome natural pet food category, the fastest growing category in the pet food market.
The acquisition will boost General Mills' net sales and profit margins. The deal is expected to be neutral to the company's cash earnings per share in fiscal year 2019 and will add to earnings in fiscal year 2020.
Said General Mills CEO Jeff Harmening, "The addition of BLUE to our family of well-loved brands provides General Mills with the leading position in the large and growing Wholesome Natural pet food category and represents a significant milestone as we reshape our portfolio to drive additional growth and value creation for our shareholders."
Founded in 2002, Blue Buffalo is the fastest growing major pet food company making natural foods and treats for dogs and cats under the BLUE brand.
Shares in GIS faded $2.02, or 3.7%, to $52.93, while BUFF shares galloped $5.73, or 16.8%, to $39.85.