General Mills (GIS) - Get Report, owner of such brands as Pillsbury, Cheerios and Blue Buffalo pet foods, said Friday it had agreed to buy Tyson Foods’ (TSN) - Get Report pet treats business for $1.2 billion in cash.
Shares of the Minneapolis company were essentially flat at $64 in premarket trading, while Springdale, Ark.-based Tyson Foods was up slightly to $80.96.
General Mills said in a statement that the acquisition will see an estimated tax benefit of $225 million, equating to an effective purchase price of $975 million.
Tyson Foods’ pet treats portfolio generated more than $240 million in net sales in the 12 months ended April 3, General Mills said.
As part of the acquisition, General Mills also will acquire a manufacturing facility in Independence, Iowa.
The deal, which is expected to close in the first quarter of fiscal 2022, would add Nudges, Top Chews and True Chews brands to General Mills' Blue Buffalo pet foods label.
General Mills said it intends to fund the acquisition with cash on hand and short-term borrowing.
The transaction is expected to add modestly to General Mills earnings in the first 12 months after completion.
"Pet food is a high-growth category, fueled by the humanization of pets, a trend that has only increased during the pandemic," Bethany Quam, president of General Mills' pet segment, said in the company statement. "By adding these trusted pet treat products to our portfolio, we are strengthening our position in this attractive category."
Pet ownership increased significantly during the COVID-19 pandemic. In October, the American Pet Products Association said that 11.38 million U.S. households had gotten a new pet during the outbreak.
General Mills' sales of pet foods rose 13% for nine months ended Feb. 28, while Tyson Foods' pet treats portfolio recorded more than $240 million in net sales in the 12 months ended April 3, Reuters reported.
Last week, Tyson Foods posted stronger-than-expected second quarter earnings but cautioned that "substantial" inflation pressures would clip its profit margins over the second half of the year