General Mills May Be a Buy

General Mills (GIS, Financial) is one of the largest food companies in the world. It has its presence felt in more than 100 countries. Starting with two flour mills in the 1860s, General Mills revolutionized the milling industry, producing flour with superior baking properties. Its flagship brands include Nature Valley, Cheerios, Pillsbury, Yoki, etc.

Numbers

This is a company known for share repurchases and dividends. In 2014, it repurchased shares and paid dividends worth $2.5 billion to investors. Net sales grew 1 percent to $17.9 billion. The company initiated a cost-saving initiative in June 2014. The company expects to generate $100 million by adopting this initiative by the end of 2017.

General Mills introduced more than 250 new items worldwide during the first quarter. Significant U.S. retail launches included: Cheerios Protein cereal; Chex gluten-free oatmeal varieties; new flavor varieties of Yoplait Greek and Greek 100 yogurt; Fiber One Streusel snack bars, and Old El Paso Bold stand and stuff taco kits. International product launches included Haagen-Dazs Triple Sensations ice cream varieties in Europe, Betty Crocker dessert mixes in Brazil and new seasonal varieties of Wanchai Ferry frozen dumplings in China.

Innovation plays a key role

At General Mills, each aspect of developing, making, distributing, marketing and selling a product is connected and collaborative. General Mills' approach to innovation — "Innovation Intersection" — connects employees with inventors, academics, entrepreneurs, suppliers, customers and consumers throughout the innovation process. It goes beyond new product development to include everything from adding health benefits to products, boosting the company's environmental sustainability efforts, finding new ways to connect iconic brands with today's on-the-go consumers, partnering with retail customers, and improving productivity.

It is continuously engaging in innovations to fuel top-line growth.

General Mills to acquire Annie's

GIS announced that it has entered into a definitive agreement to acquire Annie's (BNNY, Financial), a leading U.S. producer of branded organic and natural food products with net sales of $204 million in its latest fiscal year (completed March 2014).

Annie's will join General Mills' U.S. natural and organic products portfolio, which includes the Cascadian Farm, Muir Glen, LARABAR and Food Should Taste Good brands. Net sales for these General Mills brands totaled approximately $330 million in its latest fiscal year (ended May 2014).

Jeff Harmening, General Mills executive vice president and chief operating officer-U.S. retail, said, "This acquisition will significantly expand our presence in the U.S. branded organic and natural foods industry, where sales have been growing at a 12 percent compound rate over the last 10 years. Annie's competes in a number of attractive food categories, with particular strength in convenient meals and snacks –Â two of General Mills' priority platforms. Consumers know and trust Annie's purpose-driven culture and authentic brand. 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."

Under terms of the agreement, General Mills will acquire Annie's for $46.00 per share in cash. The proposed transaction has an aggregate value of approximately $820 million. The Annie's Board of Directors has unanimously recommended that Annie's stockholders accept the General Mills offer. General Mills will launch a tender offer within ten business days to purchase all outstanding shares of Annie's. General Mills' offer will be subject to the tender of a majority of Annie's shares and to certain other customary closing conditions including regulatory approval. The transaction is expected to close later in calendar 2014.

General Mills intends to fund the acquisition through available credit. The transaction is expected to be accretive to General Mills earnings in the first 12 months following completion, excluding certain purchase accounting adjustments, and transaction and integration expenses. (Source: company’s website)

Final thoughts

General Mills has a distinguished portfolio of leading brands. Headquartered at Minneapolis, Minn, and with nearly $18 billion in annual sales, 60 percent of sales come from U.S. retail products. It has a growing international business, contributing $5.4 billion in sales.

People across the globe are becoming more and more health conscious and food companies are working on this trend. It on a spree to innovate products those are free from preservatives. It is also currently on a spree to expand its international presence in order to boost its sales volume. General Mills is a company known to have consistently increased shareholder returns. It is further expected that it is going to continue this trend