General Mills (GIS) has reasons to wag its tail in joy Friday.
The maker of Cheerios said it will acquire Tyson Foods' pet treat business for $1.2 billion in cash. The business includes popular treat brands such as Nudges, Top Chews and True Chews. For the 12 months ended April 3, 2021, the business hauled in more than $240 million.
“This acquisition advances our Accelerate strategy and further reshapes our portfolio for growth by adding an attractive business to our fast-growing Pet platform,” General Mills CEO Jeff Harmening said in a statement on the transaction. “Today’s announcement reinforces our commitment to using all capital allocation levers – including investment in the business, dividend growth, strategic acquisitions, and share repurchases – to drive top-tier shareholder returns over the long term.”
The purchase continues Harmening's pursuit of pet food domination, one that has gained steam of late amid the pet adoption boom during the COVID-19 pandemic.
In 2018, Harmening's first major move as General Mills CEO was to buy natural pet food giant Blue Buffalo for $8 billion. Since then, the business has performed impressively as it has gained more points of distribution under General Mills.
For the nine-months ended Feb. 28, Blue Buffalo's sales surged 13% year-over-year to $1.28 billion. It was the fastest-growing division in terms of sales for General Mills. Operating profits for the segment rose 22% from a year ago to $311.9 million.
The strength in Blue Buffalo also reflects the aforementioned healthy industry backdrop for pet food. Pet food and treat sales in the U.S. gained 9.7% to $42 billion in 2020, according to the American Pet Products Association (APPA).
"We think the acquisition of premium natural meat treats brands will make a good addition to the General Mills portfolio in the fast-growing treats category where Blue [Buffalo] was underperforming," said Guggenheim Securities analyst Laurent Grandet in a note on Friday's deal. Grandet maintained his Buy rating on General Mills shares.
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