Why General Mills Paid Too Much in Its Hunger for Annie's

NEW YORK (TheStreet) -- Over the past several quarters, shareholders of organic and natural food producer Annie's (BNNY) have enjoyed a higher premium than what others were willing to pay for rivals like Hain Celestial (HAIN) and Mondelez (MDLZ) .

This didn't matter to General Mills (GIS) , which decided to pick off Annie's for $46 per share, or roughly 31% premium above Annie's most recent closing price.

Read More: 10 Stocks George Soros Is Buying

Known for its Cheerios, Bisquick and Yoplait yogurt, General Mills now wants to nibble on the growth potential that exists in natural and organic foods. It's a strategy tough to argue with. The likes of Kraft (KRFT) and Campbell Soup (CPB) are also heading in that direction.

Still, General Mills overspent on this deal, which is expected to close later this year.

Representatives from General Mills or Annie's were available for comment.

Prior to the announcement, shares of California-based Annie's were already trading at more than twice the price-to-earnings ratio of industry average (47 vs 19), according to Yahoo! Finance. After the stock's 37% jump, Annie's P/E has now ballooned to over 52, which is now 35 points higher than Mondelez. In other words, the rich just got richer. But did they?

Consider, with shares now trading around $46, Annie's investors are now (only) 7% richer in 2014 -- even after an almost 40% one-day jump. Prior to the deal, the stock was down 22% on the year. When factoring the 52-week low of $27.86 reached on June 5, investors had at one point lost more than 35% in 2014. Why do you suppose that is?

If you liked this article you might like

Cramer: Teaching an Old Company New Trix

General Mills' Solid Dividends and Divestments Offer Long-Term Value

General Mills Unveils 50 Snack Products, Just in Time for Earnings

The Packaged-Food Industry: Here's What to Expect in 2015

Why General Mills' Job Cuts Won't Revive Its Slumping Share Price