NEW YORK (Real Money) -- My jaw dropped when I saw it. General Mills (GIS) to buy Annie's (BNNY) for $46 a share. Forty-six dollars! An astounding 37% premium to the close and a 51% premium to the last 30 days.
General Mills, the best-run traditional food company in the packaged goods industry, buying the single most challenged -- some would say most poorly run -- independent natural and organic food business in the entire segment.
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It's the ultimate comeuppance, some would say even the ultimate embarrassment, because General Mills has about the longest-running history of disciplined capital allocation, while Annie's has pretty much disappointed for multiple quarters. It has had a very sorry execution for most of its two and a half years of public existence.
Yet when the dual releases came out it was all victory lap for John Foraker and his Annie's team. Under the heading "Annie's to be acquired by General Mills for $46 per share in cash," the company's second line of the release after the terms are stated seems downright surreal: "this acquisition will enable Annie's to enter a new phase of growth and success while maximizing value for stock holders." Huh? I though General Mills was buying Annie's. This makes it sound like the other way around.
It gets worse. Next up is a quote from Foraker himself: "We are excited about this strategic combination, which will enable Annie's to expand the reach and breath of our high quality great tasting organic and natural products, provide new opportunities for our employees, realize greater efficiencies in our operations and maximize value for our shareholders." OK, wait a second, Annie's, you already told us that you are maximizing shareholder value, now you are expanding your reach, not that of General Mills?
And then Foraker delivers the coup de grace: "powerful consumer shifts toward products with simple, organic and natural ingredients from companies that share consumers' core values show no sign of letting up. Partnering with a company of General Mills' scale and resources will strengthen our position at the forefront of this trend, enabling us to more rapidly and efficiently expand into new channels and product lines in a rapidly evolving industry environment."
You have to be kidding me. General Mills isn't buying Annie's, Annie's is partnering with General Mills! You can't make this stuff up. This is no takeover, this is a total triumph by a company that is regarded in the industry as the one company that has not been able to execute with any consistency.
Now compare this release with the one that General Mills put out: Under the heading "General Mills to acquire Annie's, acquisition will expand General Mills' fast growing natural and organic foods business," General Mills lists all of its other natural and organic divisions, like Cascadian, Muir Glen and Food Should Taste Good brands -- I agree with that last one by the way -- and then we get a quote, not from CEO Ken Powell but from Jeff Harmening, the executive vice president and chief operating officer, about how the acquisition will "significantly expand our presence in the U.S. branded organic and natural foods industry."
That's not hard. General Mills has nearly $18 billion in sales; only about $330 million of those sales are natural and organic, according to Bloomberg, and they are including Larabar energy bars, which may not really qualify. Annie's by contrast has $208 million in sales, but stacked on top of $330 million it does seem like a lot.
And to get those bragging rights, General Mills paid through the nose, namely 27 times earnings before interest taxes depreciation and amortization, or 42 times forward earnings. Just so you know, 42 times forward earnings that Generous Mills is paying comes out to the equivalent of $172 for Hain (HAIN) and $50 for Whitewave Foods (WWAV) , both far superior companies when it comes to growth and execution.
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