General Mills has made it official, it is acquiring hometown rival Pillsbury from British food company Diageo for $10.5 billion. It's not the first time British and American interests have swapped Twin Cities food companies.
A HUNDRED AND THIRTY some years ago, Charles A. Pillsbury's flour mills first harnessed the churning falls at St. Anthony on the Upper Mississippi to thresh wheat into flour. A nearby General Mills precursor, the Washburn-Crosby mill also did the same.
In 1889 a British company bought Pillsbury's five riverside mills and tried to snap up Washburn Crosby as well. Old rivalries between the two companies however, prevented such a merger. The British eventually sold the mills back to the Pillsbury's in 1923. In 1989 and yet another British company called Grand Metropolitan acquired Pillsbury.
Jump ahead to the present, and Pillsbury is again casting off a British parent, but this time it's joining forces with General Mills to solve a modern dilemma.
Namely, how do you make more money when consumers are consuming as much as they can and the competition is holding down the prices of your products?
The answer seems to be twofold; Get bigger, and innovate. General Mills CEO, Steve Sanger, spoke at a press conference in New York where he said size is merely a means to an end.
"I am not a believer in size for the sake of size," he said. "We felt confident that we could reach our growth targets on our own. So the only reason to do a deal like this is to deliver greater value to our shareholders by delivering faster growth."
Sanger says the merger will enable the company to save about $400 million by simplifying the business and cutting staff across the company, removing what corporations like to call, redundancies.
Prudential Securities analyst John McMillin says the prospects for some Pillsbury employees in Minneapolis aren't very bright.
"They're talking about $400 million in cost saves. That's a lot and I think a lot of it will come out of that Pillsbury tower."
General Mills will divest its North American Green Giant canned vegetables business and its North American Betty Crocker dessert mix business. Sanger says that the company is cutting canned vegetables because it wouldn't fit the goals of the new business and cake mixes because the new company would've owned more than half the nation's cake mix market. Creating a situation that anti-trust regulators would have treated with rigorous scrutiny.
McMillin thinks all these cuts will make the company leaner, and more competitive in the long run.
"I do think you'll have a better company that will grow faster and add more jobs [in the] longer term."
Another reason for this merger; A bigger General Mills will wield more power in the supermarket aisles. A point made especially significant as Target, Wal-Mart and K-Mart aggressively add supermarkets to their stores making that added power even more precious.
Jean Kinsey, Director of the Retail Food Industry Center at the University of Minnesota, says a combined General Mills will own more shelf space. That, she says provides a stage for new products.
"If those variations belong, let's say to General Mills and GM has an agreement with Wal Mart or Target or whoever to supply them with the cereals or the products on the shelves, they then have the ability to control the amount of space they want to devote to new products as opposed to old products," she explained.
General Mills will be able to apply its product development savvy to Pillsbury's products. Most notably its refrigerated dough products. With luck, they will repeat their recent success with go-gurt, a yogurt for people on the go, as well as other products.
For now the deal is receiving the stamp of approval from the Pillsbury family. George Pillsbury, who is now retired, was one of the last of Pillsburys to work in the family business.
"It's great to have them find a partner that will keep the brand management and marketing management here in Minnesota."
He says the Pillsbury crew always considered General Mills, and its predecessor Washburn Crosby Mills, a tough competitor. He believes however, that the rivalry ended when the working day did.
"They've always been well managed," Pillsbury said. "And, today they have very capable management, but they always have been extremely well managed. They were extremely good competitors."
Now they'll have to be just as able collaborators.