General Mills is gobbling up Pillsbury

MINNEAPOLIS - General Mills, the maker of Cheerios and Betty Crocker cake mix, is buying Pillsbury for $5.4 billion, gaining such well-known brands as Pillsbury rolls, Green Giant vegetables and Haagen-Dazs ice cream.

The purchase of Pillsbury from Diageo, a London food-and-drinks conglomerate, creates the world's fifth-largest food company, with nearly $13 billion in sales.

The two companies started out in the flour-milling business in Minneapolis in the 1860s, and both are still based in the Twin Cities. But today they overlap only in the manufacture of flour, dessert mixes and frosting mixes.

Steve Sanger, General Mills chairman and chief executive, said the combined company will divest the overlapping businesses by the end of 2002. It also intends to divest the Green Giant canned vegetable business in North America, which has a low profit margin, at the same time.

The purchase is subject to government and shareholder approval.

The move continues the trend of consolidation in the food industry. Several other deals have been announced this year, including Philip Morris' $15 billion purchase of Nabisco Holdings and Unilever's $20 billion acquisition of Bestfoods.

The General Mills-Pillsbury merger, announced yesterday, is expected to result in cost savings of about $25 million in fiscal 2001, $220 million in 2002 and $400 million annually by 2003, Sanger said.

Although job losses are likely, with the headquarters of both companies located in the Twin Cities, officials said it is too early to say how many cuts there would be or where they would be made.

Analyst Eric Katzman of Merrill Lynch called the acquisition "a major and bold move" that should accelerate earnings more quickly than if General Mills had remained smaller and continued to focus on its key products, which include Cheerios, Wheaties, Betty Crocker dessert mixes, Bisquick, Hamburger Helper, Yoplait and Colombo yogurt, and Pop Secret popcorn.

Pillsbury, whose symbol is the Pillsbury Doughboy, makes refrigerated dough products, baked goods, breakfast toaster products, Totino's and Jeno's pizzas and snacks, Progresso soups, and Old El Paso Mexican foods.

The General Mills-Pillsbury deal will make it the fifth-largest food company, behind Nestle, the combined Philip Morris-Nabisco, the combined Unilever-Bestfoods and ConAgra.