General Mills Case

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GENERAL MILLS' ACQUISITION OF PILLSBURY FROM DIAGEO PLC

General Mills is a major manufacturer and marketer of consumer foods in partnership with Pepsi Co. and Nestle. General Mills’ revenue is about 7.5 dollars with a market capitalization numbering to about 11 billion dollars. Its products are cereals, snacks, yogurt and many more and with this, they have to decide about an acquisition of another business which complements their products for them to be able to create more shares of stocks for the personal growth of the company. The company which they want to acquire is Pillsbury which is owned by Diageo PLC. Diageo PLC is considered as one of the leading consumer goods companies in the world. Owned by Diageo, Pillsbury operates as an independent company which produces refrigerated dough and baked goods which is related with the business of General Mills. Pillsbury‘s earning on year 2000 is $6.1 billion with reasonable debt structure.

This transaction requires General Mill to issue 141million shares of its common stock to Diageo, making him own 33% of General Mill’s outstanding stocks. It also included an assumption of $5.142 billion of Pillsbury debt by Diageo. The first two statements when added would total to the asking price of Diageo which is $10.5 billion that is $500 million larger than the proposed payment of Gen. Mills totaling to $10 billion. Another is a contingent payment by Diageo of up to $642 million to General Mills upon the first anniversary of the transaction depending on General Mill’s 20days share price at that time. If the transaction would be completed, General Mills would then own 100% of the Pillsbury’s stock as it would already be owned by General Mills.

In relation with the terms set in the transaction, General Mills didn’t like to issue one third of its shares to Diageo that is actually equal to 33%, which is what Diageo wanted. Another is that General Mills didn’t want to lose value it its investment grade bond...
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