General Mills (GIS) is on the Hedgeye Consumer Staples Best Ideas list as a LONG.
General Mills announced yesterday that they have signed a definitive agreement to sell the Green Giant and Le Sueur vegetable businesses to B&G Foods (BGS) for $765mm in cash. This news is no surprise, as it has been widely rumored for the last six months. As we laid out in our GIS Black Book, management still has work to do to reshape the portfolio for future growth. In addition to divesting underperforming non-core businesses, acquiring growth will be crucial to revitalizing the company.
The picture below walks through the deal overview and strategic rationale. In summary BGS purchased the business for $765mm in cash. Green Giant is expected to generate annualized net sales of ~$550mm and annualized adjusted EBITDA of ~$95mm to $100mm.
Although this news was largely expected by the market, it is good to finally see this deal close. We are expecting GIS to actively shape their portfolio for the foreseeable future. On whether it will be an acquisition or a divestiture, we are hoping for both, as they need to shed non-core assets and acquire high growth ones.
GIS stated that they expect the sale to be dilutive to FY2016 EPS by ~$0.05-0.07 per share, excluding transaction costs and a one-time gain on the sale. General Mills will provide additional details about the impact of the transaction when it reports 1Q16 results on September 22nd. As expected the company plans to use the net proceeds for share repurchases and debt reduction following the Annie’s acquisition last year.
Selling this big of a brand that means so much to the heritage of the company is not easy. Divesting Green Giant is a small piece of evidence that management is no longer thinking in the past, they are looking to the future. We know that many people believe GIS management to be stodgy, old, complacent, whatever word you want to use, but this simply is not true of the vast majority of the leadership team. GIS has leaders in place that can drive change and we firmly believe this will be the first step of many as they turn the company’s performance around.
Please call or e-mail with any questions.
Howard Penney
Managing Director
Shayne Laidlaw
Analyst
