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Diageo Finalizes Pillsbury Sale to General Mills.

As reported here last week, cereal giant General Mills Inc. indeed reached a final agreement to buy Pillsbury from Diageo Plc for $10.5 billion. The combination would nearly double the size of General Mills to almost $13 billion in annual sales, making it the fifth-largest food company in the world, behind Nestl[acute{e}], the pending mergers of Kraft-Nabisco and Unilever-Bestfoods, and ConAgra. The transaction is expected to close by late 2000, following regulatory review and required approval by Diageo and General Mills shareholders.

The move comes as Diageo chief executive designate Paul Walsh returned to Britain at the end of last year after eight years running Pillsbury. He will take over fully from chief executive John McGrath at the end of this year. Pillsbury's future has been under review at Diageo since February 1998, only two months after Diageo was formed from the merger of Guinness and GrandMet.

From the deal, General Mills should see cost savings of $25 million in fiscal 2001, and expects savings of $220 million in 2002 and $400 million by 2003. The anticipated savings reflect streamlining of general and administrative functions, greater supply chain efficiencies, synergies in selling and marketing activities, and increased economies of scale. Although job losses are likely, with the headquarters of both companies located in Minneapolis, officials says it is too early to tell how many or where the cuts might be made. General Mills says the first order of business is to sell Pillsbury's North American dessert mix unit and the North American Green Giant canned vegetable unit by the end of fiscal 2002.

The addition of Pillsbury will strengthen General Mills' convenience food offerings. When the merger is complete, nearly 80 percent of retail sales will be generated by ready-to-eat or quick-to-prepare foods. However, analysts said the deal poses some risks to General Mills because the company is paying a hefty price to acquire a slow-growing business in Pillsbury.

Meanwhile, Diageo also announced a sweeping consolidation of its more profitable spirits, wine and beer businesses in an effort to cut costs and narrow the company's focus. The company said it will integrate its United Distillers & Vintners unit with its Guinness brewing operations. It also indicated that it would be interested in buying some of the brands of Seagram Co. The move is one of the final steps in a plan to transform the group into a focused drinks business.

The General Mills-Pillsbury merger comes amid a wave of consolidation in the food industry as companies fight weak sales and increasing competition for retailers' prime shelf space. The current round of consolidation also is a result of companies' failure to support their strongest brands, marketing experts say, and many of the best-known brands are likely to disappear. Some will be replaced by new brands, while many more will be displaced by retailer-backed house brands. The marketers that stay independent and prosper will be those that can innovate and boost demand for their branded products, observers say.
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Comment:Diageo Finalizes Pillsbury Sale to General Mills.
Publication:Food & Drink Weekly
Article Type:Brief Article
Geographic Code:1USA
Date:Jul 24, 2000
Words:498
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