Annie's Song to be Sung by General Mills Inc. and Not John Denver

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Sep 09, 2014
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General Mills Inc. (GIS, Financial) is on its way to adding a new territory to its food kingdom. We have enjoyed the tidbit happy moments of our life several times over Pillsbury, Cheerios, Haagen-Dazs and Nature Valley from the General Mills’ supplies, now General mills is going to serve us with yet another partner to share our joys and sorrows with: Annie’s Homegrown(BNNY, Financial), the organic food company known for its mac and cheese and earthy vibe. General Mills is in the process of adding to Annie’s homegrown to its already elaborate menu book.

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Inside General Mills

Let us take a look at the menu booklet of General Mills that we have enjoyed with friends and family since 1856. We have all shared our moments in life with some of these: Betty Crocker, Yoplait, Colombo, Totino's, Pillsbury, Green Giant, Old El Paso, Häagen-Dazs, Cheerios, Trix, Nature Valley and Lucky Charms. General Mills Inc. has been serving us with all of these mouthwatering brands for years. They are base in the Minneapolis suburb of Golden Valley, Minnesota and have earned their prominent position in the Fortune 500 through all these years of endeavor to satiate our taste buds.

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Now it is on its way to adding another most sought after food brand to its bastion and earning a higher level in our hearts. So what is the next addition to General Mills’ serving list?

The kitchens of Annie’s Homegrown

The Berkeley, California-based company is well known among the foodies for its natural and organic pastas, meals and snacks. Imagine yourself breathing in the aroma of their famous macaroni and cheese dishes, served in shell form and bunny rabbit shapes. Their macaroni and cheese product line features the second best-selling macaroni and cheese product in the United States. We are also familiar with their mascot, the rabbit named Bernie, who features in the seal of approval called the "Rabbit of Approval." The company also cooks the well-known Annie's Naturals; the ingredients are condiments, dressings and barbecue sauces. In January 2012, Annie's launched a new line of certified organic rising crust frozen pizzas.

Annie Withey and Andrew Martin came together to form Annie's in 1989. Initially, the company’s sole offering was natural macaroni and cheese, sold in New England supermarkets.

In 1995 Annie's became a direct public offering company that raised $1.3 million. In 1999, John Foraker, the owner of Homegrown Natural Foods, which produced flavored olive oils and mustards, invested $2 million in Annie's and bought the stakes of Withey and Martin's in the company and made Annie's a private company. Withey became Annie's "inspirational president", and the company began distributing its products to chains like Costco (COST, Financial), Kroger (KR, Financial), and Safeway (SWY, Financial).

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In 2002, Solera Capital (SLH, Financial) became the major investor in the company paying up $23 million. They also added Foraker's company to the business, and moved Annie's headquarters from Boston to Berkeley, California.

Through this long legacy of evolution Annie’s Homegrown has earned a reputation for itself in the food market and won the hearts of millions of foodies across North America to become the second best-selling macaroni and cheese in the U.S.

Tale of two food legacies becoming ONE

Leaving aside the deliciousness of this acquisition deal and talking about the business numbers, yesterday General Mills gave out their official statement of buying out Annie’s for about $820 million in cash, in a bet on shoppers’ continued rise in demand for natural and organic foods. In keeping with public taste and trend General Mills have decided to take Annie’s Homegrown in its ambit of offerings.

Getting into further breakup of the $820 million it works out to $46 per share which is a 51 percent premium price paid over Annie’s last 30-days average closing price as of last Friday. The move of Annie’s acquisition was not a surprise as analysts had already set their speculation caps of Annie’s acquisition. Soon after this revelation on Monday Annie’s share price saw a considerable surge by 37 percent in trading after the stock market closed on Monday and post Monday’s trading session Annie’s share price stood at $33.51. This deal enlightens the fact that how big food companies are willing to pay up for brands that are seen as home cooked and healthful. This is also a market indicator for the food companies that the customer taste is now changing towards adopting more healthy food and with this change it is also time for them to do a revisit to their kitchens.

Jeff Harmening, the chief operating officer for General Mills United States retail business, said, “Consumers know and trust Annie’s purpose-driven culture and authentic brand, and we believe that combining the Annie’s product portfolio and go-to-market capabilities with General Mills’ supply chain, sales and marketing resources will accelerate the growth of our organic and natural foods business.” From this we can easily make out the exuberance at the General Mills camp about this acquisition.

On the other side of this deal, John Foraker, chief executive of Annie’s, said, “Powerful consumer shifts toward products with simple, organic and natural ingredients from companies that share consumers’ core values show no signs of letting up. Partnering with a company of General Mills’ scale and resources will strengthen our position at the forefront of this trend.” This statement release is also evidence of the fact that Annie’s Homegrown has set ambitious targets for itself and is all set to put its brand on the fast lane. Annie’s has also assured its patrons and customers it would stay true to its values of healthy food as an environmentally conscious business and would continue operating from Berkeley, California. According to Annie’s management it’s just a change of business documents and functional modes and will not affect the superior quality of its food in any way.

How will the deal sweeten our palates?

General Mills plans to initiate a tender offer within 10 business days for Annie’s shares. The deal, subject to a majority of the shares being tendered and to regulatory approval, is expected to close later this year. So for now it would be wise to closely observe how the deal goes through and accordingly take position in the food giant’s company.