With processed foods continuing a secular decline following years of rising consumption globally, firms such as General Mills Inc. (NYSE:GIS) are ramping up efforts to diversify while maintaining a growing presence within the food industry.
Last week’s move to buy Blue Buffalo Pet Products Inc. (NASDAQ:BUFF) for almost $8 billion has sent the company’s stock price sharply lower, despite growing optimism among some investors that moving into the pet food business was worth the premium paid.
General Mills certainly did pay a significant premium for Blue Buffalo – the premium of more than 17% which was paid to acquire one of the premier pet food companies was on top of a stock price increase of more than 50% over the past two quarters.
Higher margins, wider moats, and the ability to take advantage of the fact that many of Blue Buffalo’s products are natural and/or processed in a minimalistic fashion are excellent reasons for General Mills to have pursued this deal. The question remains, however, just exactly how General Mills’ management team intends to extract enough value out of this transaction for it to make sense in the long-run.
General Mills’ stock price has dipped further on Friday following the announcement (closing more than 3% lower on the news), continuing a slide which has seen shares of General Mills travel on a downward sloping trajectory since mid-2016 when the company’s share price broached $70.
Today, investors can pick up shares of General Mills for below $53 per share, an attractive price in today’s economic environment filled with overpriced equities.
Invest wisely, my friends.
