- 3G Capital could have its eye on a General Mills takeover, according to an analyst report from Citigroup Inc. Such a move could signal the potential for further consolidation in the food and beverage industry.
- General Mills could be scooped up by 3G's Kraft Heinz Co. at a price of $86 per share, Citigroup analyst David Driscoll wrote in a report Tuesday. Such a proposal would come in at a 37% premium to General Mills' stock price as of Monday's market close, Bloomberg reported.
- 3G, known for its aggressive cost-cutting strategy to boost its acquisition targets' profitability, could drive a 7.7 percentage point increase in operating margins to 25% for General Mills, Driscoll estimated in his report. Bloomberg reported General Mills' stock rose up to 1.7% on the report.
Portfolio-wise, a General Mills takeover makes sense for 3G and Kraft Heinz, more so than Mondelez, another rumored purchase target. Kraft Heinz is currently reviewing brands to determine which, if any, need to be divested and which can be repositioned. General Mills would add another layer to this with its massive portfolio, which could complicate the process.
But General Mills could bring in segments that Kraft Heinz hasn't yet established a strong presence in, such as cereal. While cereal has struggled in recent years, General Mills and Kellogg executives feel the category is set for a turnaround. A General Mills acquisition could put Kraft Heinz at the forefront of that turnaround, which could produce a greater return on investment.
General Mills has been working to make its cereal offerings more attractive to heath-conscious consumers through ingredient changes like removing artificial colors and flavors, releasing Cheerios Protein and gluten-free labels for the brand, and making Lucky Charms gluten-free. General Mills also committed to labeling GMO ingredients across its portfolio. Elsewhere, the company's "trendy" pumpkin spice Cheerios push could backfire. Health-conscious consumers may be adverse to the flavor trend. Varieties with unique health benefits may have more staying power than products that capitalize on the flavor of the week.
Kraft Heinz doesn't seem too pressured to go better-for-you. Processed foods are still a big win at the grocery store for manufacturers, with Americans still on average consuming about 58% of their total daily calories from "ultra-processed" foods.
If Kraft Heinz were to get its hands on General Mills' cereal brands, it may take a different route than General Mills and find ways to highlight characteristics like convenience and indulgence — perhaps making pumpkin spice go beyond a limited-time offering.