General Mills’ Acquisition of Pillsbury from Diageo Plc
Case 1
General Mills’ Acquisition of Pillsbury from Diageo PLC 1. What are General Mills’ motives for this deal? Estimate the present value of the expected cost savings (synergies).
In the spring of 1998 General Mills began studying areas where they could add to the company and advanced a strategy of acquisition-driven growth. General Mills has several motives for pursuing a deal to acquire Pillsbury. Pillsbury was identified as an ideal target due to its ability to complement General Mills’ other existing businesses and Diageo’s readiness to sell. The potential acquisition of Pillsbury would create value for shareholders by “accelerated sales and earnings growth…..through product innovation, channel expansion, international expansion, and productivity gains.” The addition of Pillsbury would lead to a more balanced product portfolio offered by General Mills and its existing businesses, and it the new company would be the fifth largest corporation by measure of global food sales. This diversification and growth allows General Mills to enter new markets and protect itself from losses by stabilizing its markets and adding new customers. The amount of General Mills shelf space will increase in stores, which allows greater flexibility to advertise products and adjust their products to the demands of the consumer. The company will have access to new markets both geographically and in new fast-growing areas of food sales. Supply chain improvements in sales, merchandising, marketing, and administration through the consolidation of Pillsbury and General Mills would create pre-tax savings that are estimated at $645 million through 2003. The acquisition would provide an array of new products that would allow General Mills to reach better economies of scope, which would create greater efficiencies in its COGS and SG&A. In terms of growth, the acquisition of Pillsbury would almost double the size of the company in terms of revenue. In 2000, General Mills had revenue
General Mills’ Acquisition of Pillsbury from Diageo PLC 1. What are General Mills’ motives for this deal? Estimate the present value of the expected cost savings (synergies).
In the spring of 1998 General Mills began studying areas where they could add to the company and advanced a strategy of acquisition-driven growth. General Mills has several motives for pursuing a deal to acquire Pillsbury. Pillsbury was identified as an ideal target due to its ability to complement General Mills’ other existing businesses and Diageo’s readiness to sell. The potential acquisition of Pillsbury would create value for shareholders by “accelerated sales and earnings growth…..through product innovation, channel expansion, international expansion, and productivity gains.” The addition of Pillsbury would lead to a more balanced product portfolio offered by General Mills and its existing businesses, and it the new company would be the fifth largest corporation by measure of global food sales. This diversification and growth allows General Mills to enter new markets and protect itself from losses by stabilizing its markets and adding new customers. The amount of General Mills shelf space will increase in stores, which allows greater flexibility to advertise products and adjust their products to the demands of the consumer. The company will have access to new markets both geographically and in new fast-growing areas of food sales. Supply chain improvements in sales, merchandising, marketing, and administration through the consolidation of Pillsbury and General Mills would create pre-tax savings that are estimated at $645 million through 2003. The acquisition would provide an array of new products that would allow General Mills to reach better economies of scope, which would create greater efficiencies in its COGS and SG&A. In terms of growth, the acquisition of Pillsbury would almost double the size of the company in terms of revenue. In 2000, General Mills had revenue