NEW YORK (TheStreet) -- The organic food category is abuzz on Tuesday following General Mills' (GIS) plan to acquire Annie's (BNNY) , a maker of organic and natural food products, for approximately $820 million.
The companies announced the deal Monday night, saying that Annie's products would join General Mills' U.S. natural and organic products portfolio, which includes Cascadian Farm, Muir Glen, Larabar and Food Should Taste Good brands. For fiscal 2014, which ended in March, Annie's had net sales of $204 million. Net sales for General Mills' organic brands totaled $330 million for fiscal 2014 (ended in May), according to a press release by General Mills.
General Mills is offering to pay $46 a share in cash to Annie's shareholders, which is a 37% premium to Annie's closing price on Monday. The Minneapolis-based company will launch a tender offer within 10 business days to purchase all outstanding shares of Annie's.
"This acquisition will significantly expand our presence in the U.S. branded organic and natural foods industry, where sales have been growing at a 12% compound rate over the last 10 years," Jeff Harmening, General Mills executive vice president and chief operating officer -- U.S. retail, said in press release. "Annie's competes in a number of attractive food categories, with particular strength in convenient meals and snacks -- two of General Mills' priority platforms. Consumers know and trust Annie's purpose-driven culture and authentic brand. We believe that combining the Annie's product portfolio and go-to-market capabilities with General Mills' supply chain, sales and marketing resources will accelerate the growth of our organic and natural foods business."
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Shares of Annie's were surging 37% to $45.99 on Tuesday. Shares of General Mills fell fell 0.37% to $53.31. The deal is expected to be completed by the end of the year. Here's what analysts are saying Tuesday about the deal.
Scott Van Winkle, Canaccord Genuity (Annie's: Hold; $46 PT)
General Mills' proposed acquisition of Annie's supports our thesis that BNNY enjoys one of the strongest brands in the natural/organic food industry, along with an efficient business model and favorable sector growth.
At ~20x C2015E EBITDA, over 3x forward revenue forecast or just under 42x C2015E EPS, the valuation is above industry averages and speaks to not only Annie's brand, but the attractiveness and growth of the natural/organic sector. While we don't rule out the emergence of a superior offer, we can't envision a superior bid could emerge. Expect sector multiples to expand, with BDBD and HAIN as prime beneficiaries, among others. The broadening distribution of natural/organic brands into supermarket channels only increases the likelihood of further deals.