General Mills
Contents
1. REPORT SUMMARY 1
2. OVERVIEW OF GENERAL MILLS, INC. 1
3. OVERVIEW OF DIAGEO PLC AND PILLSBURY COMPANY 2
4. OVERVIEW OF GENERAL MILLS’ ACQUISITION OF PILLSBURY 3
5. GENERAL MILLS’ STRATEGIC MOTIVES FOR ACQUIRING PILLSBURY 4
6. IS THE DEAL ECONOMICALLY ATTRACTIVE? 5
6.1. VALUATION OF PILLSBURY (WITHOUT SYNERGIES) 5
6.2. VALUE OF SYNERGIES (COST SYNERGIES) 5
6.3. VALUE OF CLAWBACK 6
6.4. VALUE OF GENERAL MILLS’ STOCK PAYMENT 9
6.5. VALUE OF DEBT ASSUMED 9
7. RECOMMENDATION FOR GENERAL MILLS’ SHAREHOLDERS 10
1. REPORT SUMMARY
On December 8, 2000, management at General Mills proposed a plan to acquire Pillsbury, a baked-goods producer. Pillsbury is currently controlled by Diageo PLC, one of the world’s leading consumer goods companies. The deal specifies that General Mills is to create and thus issue additional shares of common stock to Diageo in exchange for complete ownership of the Pillsbury subsidiary. If the deal is executed, Diageo will become General Mills’ largest shareholder.
The consideration to Diageo would include 141 million shares of the company's common stock and the assumption of $5.142 billion of Pillsbury debt, making the deal worth over $10 billion. In addition, the agreement will contain a contingency payment, as up to $642 million of the total transaction value may be repaid to General Mills at the first anniversary of the closing, depending on its average stock price at that time. In this report, we will calculate and analyze various costs and benefits associated with the transaction to determine whether or not General Mills’ shareholders should vote for the proposed acquisition. If approved, General Mills will become the fifth largest food company in the world
2. OVERVIEW OF GENERAL MILLS, INC.
General Mills manufactures and markets branded consumer foods worldwide. It has a strong presence in the United States, as it is the nation’s largest producer of yogurt and the second
1. REPORT SUMMARY 1
2. OVERVIEW OF GENERAL MILLS, INC. 1
3. OVERVIEW OF DIAGEO PLC AND PILLSBURY COMPANY 2
4. OVERVIEW OF GENERAL MILLS’ ACQUISITION OF PILLSBURY 3
5. GENERAL MILLS’ STRATEGIC MOTIVES FOR ACQUIRING PILLSBURY 4
6. IS THE DEAL ECONOMICALLY ATTRACTIVE? 5
6.1. VALUATION OF PILLSBURY (WITHOUT SYNERGIES) 5
6.2. VALUE OF SYNERGIES (COST SYNERGIES) 5
6.3. VALUE OF CLAWBACK 6
6.4. VALUE OF GENERAL MILLS’ STOCK PAYMENT 9
6.5. VALUE OF DEBT ASSUMED 9
7. RECOMMENDATION FOR GENERAL MILLS’ SHAREHOLDERS 10
1. REPORT SUMMARY
On December 8, 2000, management at General Mills proposed a plan to acquire Pillsbury, a baked-goods producer. Pillsbury is currently controlled by Diageo PLC, one of the world’s leading consumer goods companies. The deal specifies that General Mills is to create and thus issue additional shares of common stock to Diageo in exchange for complete ownership of the Pillsbury subsidiary. If the deal is executed, Diageo will become General Mills’ largest shareholder.
The consideration to Diageo would include 141 million shares of the company's common stock and the assumption of $5.142 billion of Pillsbury debt, making the deal worth over $10 billion. In addition, the agreement will contain a contingency payment, as up to $642 million of the total transaction value may be repaid to General Mills at the first anniversary of the closing, depending on its average stock price at that time. In this report, we will calculate and analyze various costs and benefits associated with the transaction to determine whether or not General Mills’ shareholders should vote for the proposed acquisition. If approved, General Mills will become the fifth largest food company in the world
2. OVERVIEW OF GENERAL MILLS, INC.
General Mills manufactures and markets branded consumer foods worldwide. It has a strong presence in the United States, as it is the nation’s largest producer of yogurt and the second