General Mills to Buy Pillsbury

July 17 -- Food giant General Mills will buy Pillsbury for $10.5 billion, Pillsbury’s parent company Diageo PLC announced.

The combined Pillsbury-General Mills will become “a major new force in the changing U.S. food industry,” John McGrath, Diageo’s chief executive officer said.

The combination would nearly double the size of General Mills to about $13 billion in annual sales, making it the fourth-largest food company in the world behind Nestle, the pending merger of Kraft and Nabisco, and the pending merger of Unilever and Bestfoods.

Cheerios + Haagen Dazs

The deal would give General Mills, the maker of Cheerios cereal, such brands as Haagen-Dazs ice cream and Old El Paso Mexican foods.

General Mills will sell two Pillsbury units: Green Giant canned vegetables and Pillsbury dessert mixes. Together, General Mills and Pillsbury would control most of the baking-mix market, making it necessary for General Mills to divest itself of Pillsbury’s holdings in that category to avoid antitrust problems.

Pillsbury brings more convenience foods to the General Mills’ table. The combined company’s portfolio of products “will be 80 percent ready-to-eat or fast-prep products that take less than 15 minutes to make,” General Mills CEO Steve Sanger said.

British conglomerate Diageo, which also owns Guinness beer, Smirnoff vodka and Burger King, would hold one-third of the new company. General Mills is paying Diageo $5.1 billion in cash and $5.4billion in shares to close the deal.

The Pillsbury-General Mills merger was approved during weekend talks between the two companies’ boards, according to news reports. Pillsbury and General Mills are both based in Minneapolis.

Wave of Consolidation

The merger comes amid a wave of consolidation in the food industry as they fight weak sales and increasing competition for grocers’ prime shelf space.

Among the most recent and largest deals are Unilever’s $20.3 billion deal for Bestfoods, the maker of Skippy peanut butter, and Philip Morris Cos.’ $14.9 billion agreement to buy Nabisco Holding Corp., which makes Ritz crackers and Oreo cookies.