General Mills likely to be overtaken by 3G, analysts speculate

13-Dec-2016 - Last updated on 14-Dec-2016 at 15:26 GMT

General Mills has been using a cost-cutting strategy to make itself financially more attractive to potential buyers, Euromonitor speculated. Pic: ©iStock/Wolterk

Brazilian multibillion-dollar investment firm, 3G Capital, is likely to target General Mills for its next acquisition move, after it helped Heinz take over Kraft Foods for $40bn alongside Warren Buffett-owned Berkshire Hathaway last year.

3G is reported to be raising as much as $10bn for the additional consumer goods acquisitions, according to Reuters.

BakeryandSnacks has reached out to 3G for a comment. General Mills’ spokesperson told us the company does not normally comment on market speculation.

Like-minded product portfolios

Euromonitor’s senior food analyst, Pinar Hosafci, said the Cheerios’ maker could be the next target for 3G primarily because the company has a lot of overlap with Kraft-Heinz in terms of its product portfolio.

“A lot of Kraft-Heinz’s products are around meal solutions and cooking ingredients. General Mills has some of the leading brands in the same category, including Betty Crocker, Pillsbury and Progresso,” she said.

In the meantime, General Mills has pursued a “more active approach” to streamline its portfolio towards premium, higher margin products, including Annie’s Naturals, a producer of organic snacks and meals; and ethical meat snacks brand Epic Provisions, Hosafci added.

“General Mills' large North American presence could also make it a clean target along the lines of Kraft-Heinz. It is a lot cheaper than many other rumoured targets such as Mondelēz, too.”

Using holistic margin management

General Mills is also looking for ways to make itself financially more attractive to potential suitors, using what it calls holistic margin management or zero-based budgeting, explained by Hosafci as “one of the most stringent cost-cutting measures that is becoming ever more prevalent in the food industry.”

The company has closed its chilled and frozen dough factory in Berwick, UK, in fall this year, this site previously reported. Prior to the closure, General Mills also shut down factories located in New Zealand, Taiwan and the US.

In July, General Mills announced it would close production lines in Brazil and China, following a 10% decline in sales from its international business during the 2016 fiscal year.

“To this end, the company has closed about 20% of its North American manufacturing plants, an initiative being expanded to its international facilities, and it exited some underperforming businesses including Green Giant,” Hosafci said.

On December 5, General Mills approved restructuring actions that include eliminating approximately 400 to 600 positions globally, according to the company’s 8-K filed with the US Securities and Exchange Commission.

These restructuring actions are expected to be completed by the end of fiscal 2018.