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Takeaway: General Mills is a great company.

The following is a summary of our 92 page Black Book on General Mills.  We are LONG General Mills and believe there are multiple ways to win

  1. The current management transforms into an Activist management team - 15% chance
  2. Fundamentally – Gluten Free Cheerios is  a home run – 20% chance
  3. Management sells the company – 15% chance
  4. An Activist shareholder takes a position  – 50% chance

We summarize the key takeaways into three main points:


GIS NEEDS TO BE REINVENTED!

The opportunity to create significant shareholder value from repositioning the company is significant. The recent performance suggests that management may be too stuck in the past to reshape the company in a way that will accelerate top line growth. There have been a number of events over the past few years that suggest the timing is optimal for an activist to come on and re-shape management and the board.

TRANSFORMATIONAL TRANSACTION

GIS has done a lot of things to stave off an activist attack, but it will all be for nothing if they do not execute on their growth plan. GIS is a great company with strong brands. Its business practices and backward looking are insular. Reshaping the portfolio of brands, CPW and G&A cuts are just some of the ways to create significant shareholder value.

MANY WAYS TO WIN

GIS needs to reshape the company to stay as a premier global food company.  Alternatively, GIS would make a solid acquisition target, especially for PepsiCo. GIS needs to accelerate its growth and management is struggling to do it internally. In our view, selling the company to PepsiCo would be an ideal scenario for all stakeholders. Or reinvent the company through meaningful acquisitions and divestitures.

THE HEDGEYE GIS ACTIVIST PLAYBOOK

Our playbook for GIS is focused on a few key moves, which involve transitioning the company to a more progressive global food company:

  1. The GIS Board is past its sell-by date
  2. Rationalize SKUs
  3. Brand portfolio rationalization
  4. Streamline SG&A
  5. Restructure CPW JV
  6. Transformational transaction

OVERVIEW OF GIS

The company generated $17.9bn in FY14 across its three reportable business segments:

  • U.S. Retail ($10.6bn)
  • International ($5.4bn)
  • Convenience Stores & Foodservice (C&F) ($1.9bn)

The company is focused on five key platforms globally:

  1. Ready-to-Eat (RTE) Cereal
  2. Super-Premium Ice Cream
  3. Yogurt
  4. Convenient Meals
  5. Sweet & Savory Snacks

Respected management team, although they seem to be complacent with the current status of the business.

GIS – THE ACTIVIST PLAYBOOK - Chart 1 5.6.15

HISTORICAL TRANSFORMATION

GIS has taken themselves from a Consumer Goods conglomerate to a more focused pure play packaged food company.

GIS – THE ACTIVIST PLAYBOOK - Chart 2 5.6.15

CEREAL IS A GREAT CATEGORY

The cereal category is not dead; it is merely at a point of maturity.

GIS – THE ACTIVIST PLAYBOOK - Chart 3 5.6.15

GIS – THE ACTIVIST PLAYBOOK - Chart 4 5.6.15

GIS – THE ACTIVIST PLAYBOOK - Chart 5 5.6.15

THE GROWTH MODEL HAS LITTLE FOUNDATION

The company's long-term “growth” model is unachievable given the current structure of the company.  The key “growth” brands represent only 45% of the global portfolio. 

GIS – THE ACTIVIST PLAYBOOK - Chart 6 5.6.15

GIS – THE ACTIVIST PLAYBOOK - Chart 9 5.6.15

TRANSFORMATIONAL TRANSACTION

We have a detailed Black Book coming out that will highlight the transaction of PepsiCo acquiring General Mills.

GIS – THE ACTIVIST PLAYBOOK - Chart 7 5.6.15

WHAT IS GIS WORTH

GIS has a lot of value that needs to be unlocked. Divesting underperforming slow growth brands will enable further growth and value for shareholders.

GIS – THE ACTIVIST PLAYBOOK - Chart 8 5.6.15

Let us know if you have any questions, or would like to discuss in more detail.

Howard Penney

@HedgeyeHWP