Confirming it intends to buy 50 percent of yogurt maker Yoplait, General Mills
Inc. said Friday that the deal will give it global access to a famous brand
with a lot of potential for sales growth.
PAI Partners, the French private equity firm that is selling its Yoplait
stake, indicated the sale price would be $1.1 billion, half of Yoplait's total
value. The other half of Yoplait, the world's second leading yogurt company,
will continue to be owned by the French dairy cooperative Sodiaal.
Golden Valley-based General Mills has held the U.S. marketing license for
Yoplait products since 1977. Under the new ownership arrangement, General
Mills would try to expand Yoplait's market share in western Europe and extend
its reach in China, India and other emerging markets.
Analysts said General Mills appeared to be buying the 50 percent stake
partly to ensure that it retains U.S. marketing rights to Yoplait. The company
has been in a dispute with Sodiaal over licensing fees. But General Mills
spokesman Tom Forsythe said Friday that the company's motives are offensive,
not defensive.
"Our rationale is entirely based on growth... We know this category and
we know this brand."
Yoplait is the leading U.S. yogurt, with about a 33 percent market share
for the year ended Oct. 31, according to SymphonyIRI Group, a market research
firm. Yoplait has been one of General Mills' star brands, with $1.5 billion in
retail sales in the company's most recently completed fiscal year and
accounting for 15 percent of its total U.S. retail sales.
The Yoplait deal would give General Mills the potential to broaden its
foreign sales, which now make up about 25 percent of its roughly $15 billion
in annual revenue.
General Mills, one of the largest U.S. packaged foodmakers, said Friday
it is in "exclusive negotiations" to buy 50 percent of Yoplait, plus a
controlling interest in the business.
Under French law, "exclusive negotiations" means a tentative deal has
been reached, but an acquiree's workers must be consulted. General Mills said
it's initiating those consultations, a process that could take a couple of
weeks.
PAI Partners began mulling the sale of Yoplait in July, and several major
global food companies have reportedly been in hot pursuit. Dow Jones
Newswires, quoting a PAI spokesman, said General Mills put up the right price,
but also "complied with a number of Sodiaal and French-government backed
requests."
Forsythe declined to comment on that notion. But he said General Mills,
unlike other bidders, has virtually no overlap with Yoplait's operations.
Overlap in corporate deals usually leads to jobs being lost and plants being
closed -- anathema to state and federal governments alike.
Yoplait has 1,500 employees in Europe -- 1,300 in France alone, according
to its website.
The company has 29 franchisees in almost 50 countries, and General Mills
is its largest single licensee. North America makes up almost half of
Yoplait's gross sales.
In September, Sodiaal's licensing arm, Sodima, tried to terminate its
contract with General Mills after failing to renegotiate the royalty rate.
General Mills declared that the contract doesn't have language that would
allow Sodima to terminate or renegotiate. The company took the dispute with
Sodima to an international commerce group that specializes in arbitration.
The arbitration process could take years, but it appears a
Yoplait-General Mills deal would help end the dispute. "We fully expect that
matter to be resolved very soon," Forsythe said.
Judy Hong, a stock analyst at Goldman Sachs, said in a report that she
viewed the Yoplait deal "favorably from a strategic standpoint, but there is a
high degree of uncertainty." The deal "removes the U.S. brand licensing
dispute," and it can accelerate General Mills' efforts to expand in emerging
markets, she wrote.
But the Yoplait brand has "challenges" in its core European markets, "and
financial implications of the deal are unclear given the absence of financial
disclosure by [privately held] Yoplait."
General Mills stock closed Friday at $36.65, up 52 cents or 1.44 percent,
on a day the broad market, as measured by the S&P 500, was up 0.43 percent.
Star Tribune reporter Steve Alexander contributed to this report.
