General Mills’ $8 Billion Acquisition of Blue Buffalo Pet Products, Inc.

Goldman Sachs & Co. LLC acted as financial advisor to General Mills and Cleary Gottlieb Steen & Hamilton LLP acted as legal counsel. J.P. Morgan Securities LLC and Centerview Partners LLC acted as financial advisors to Blue Buffalo and Simpson Thacher & Bartlett LLP acted as legal counsel to Blue Buffalo.

General Mills, Inc. (NYSE: GIS) and Blue Buffalo Pet Products, Inc. (NASDAQ: BUFF) have entered into a definitive agreement under which General Mills will acquire Blue Buffalo for $40.00 per share in cash, representing an enterprise value of approximately $8.0 billion. The transaction establishes General Mills as the leader in the U.S. Wholesome Natural pet food category, the fastest growing portion of the overall pet food market, and accelerates its portfolio reshaping strategy.

Founded in 2002, Blue Buffalo is the fastest growing major pet food company making natural foods and treats for dogs and cats under the BLUE brand, which includes BLUE Life Protection Formula, BLUE Wilderness, BLUE Basics, BLUE Freedom and BLUE Natural Veterinary Diet. BLUE is the #1 Wholesome Natural pet food brand in the U.S. with $1.275 billion in net sales and $319 million in Adjusted EBITDA for fiscal year 2017, representing an Adjusted EBITDA margin of 25%. Over the past three years, Blue Buffalo has delivered compound annual net sales growth of 12% and Adjusted EBITDA growth of 18%.

The all-cash purchase price of $40.00 per share represents a 23% premium to Blue Buffalo’s 60-day volume weighted average price (VWAP), and a 2017 Adjusted EBITDA multiple of approximately 22x, including synergies.3 General Mills expects to finance the transaction with a combination of debt, cash on hand and approximately $1.0 billion in equity.

Following the transaction, General Mills’ pro forma net debt-to-EBITDA ratio is expected to be approximately 4.2x. General Mills is committed to maintaining an investment grade rating and expects to deleverage to approximately 3.5x by the end of fiscal 2020. General Mills expects to maintain its $0.49/share quarterly dividend and suspend its current share repurchase program while it prioritizes achieving its leverage target.

The transaction, which has been approved by the Boards of Directors of General Mills and Blue Buffalo, is subject to regulatory approvals and other customary closing conditions, and is expected to close by the end of General Mills’ fiscal 2018. Invus, LP (Invus) and founding Bishop family shareholders, representing more than 50% of Blue Buffalo’s outstanding shares, have approved the transaction and no other approval of Blue Buffalo’s Board of Directors or shareholders is required to complete the transaction.

Blue Buffalo Pet Products, Inc. operates as a pet food company. The company, led by William Bishop Jr, Lawrence Miller and Michael Nathenson, in 2017 recorded $1.274 Billion revenues.

The Simpson Thacher team includes Mario Ponce (Picture), Anthony Vernace, William Allen, Johanna Mayer, David Acquay and Robert Meyer (M&A); Ken Wallach and Hui Lin (Corporate and Capital Markets); Brian Steinhardt (Banking and Credit); David Rubinsky, Patricia Adams and Pasco Struhs (Executive Compensation and Employee Benefits); Marcy Geller and C.J. Murray (Tax); Lori Lesser and Kate Stein (Intellectual Property); Adeeb Fadil and Noreen Lavan (Environmental); and Bradley Goldberg, Amanda Weiss and James Rapp (Public Company Advisory Practice).

 

Involved fees earner: Mario Ponce – Simpson Thacher & Bartlett; Anthony Vernace – Simpson Thacher & Bartlett; William Allen – Simpson Thacher & Bartlett; Johanna Mayer – Simpson Thacher & Bartlett; Robert Meyer – Simpson Thacher & Bartlett; Kenneth Wallach – Simpson Thacher & Bartlett; Hui Lin – Simpson Thacher & Bartlett; Bradley Goldberg – Simpson Thacher & Bartlett; Amanda Weiss – Simpson Thacher & Bartlett; James Rapp – Simpson Thacher & Bartlett; Brian Steinhardt – Simpson Thacher & Bartlett; David Rubinsky – Simpson Thacher & Bartlett; Patricia Adams – Simpson Thacher & Bartlett; Marcy Geller – Simpson Thacher & Bartlett; Christopher Murray – Simpson Thacher & Bartlett; Lori Lesser – Simpson Thacher & Bartlett; Kate Stein – Simpson Thacher & Bartlett; Adeeb Fadil – Simpson Thacher & Bartlett; Noreen Lavan – Simpson Thacher & Bartlett;

Law Firms: Simpson Thacher & Bartlett;

Clients: Blue Buffalo Pet Products, Inc.;

 

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Author: Ambrogio Visconti